Exchange Rate Information

Our business is primarily conducted in Russia and almost all of our revenues are denominated in Russian rubles. We have presented our most recent annual results of operations in U.S. dollars for the convenience of the reader. Unless otherwise noted, all conversions from RURRUB to U.S. dollars and from U.S. dollars to RURRUB in this Annual Report were made at a rate of RUR 32.7292RUB 60.6569 to $1.00, the official exchange rate quoted by the Central Bank of the Russian Federation as of December 31, 2013.2016. On March 31, 2014,17, 2017, the exchange rate was RUR 35.6871RUB 58.2437 to $1.00. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of Russian rubles at the dates indicated.

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The following table presents information on the exchange rates between RURRUB and the U.S. dollar for the periods indicated as quoted by the Central Bank of the Russian Federation:

See "Risk“Risk Factors—Fluctuation in currency exchange rates, particularly depreciation of the Russian ruble,Emerging markets, such as Russia, are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may materially adversely affecthave a material adverse effect on our business, financial condition and results of operations"operations.” for a discussion of the foreign currency exchange rate risks and uncertainties our business faces.

B.    Risk Factors

Investing in our Class A shares involves a high degree of risk. The risks and uncertainties described below and elsewhere in this Annual Report, including in the section headed "Operating“Operating and Financial Review and Prospects"Prospects”, could materially adversely affect our business. These are not the only risks that we face; additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factors that affect us. Any of these risks could adversely affect our business, financial condition and results of operations. In such case, the trading price of our Class A shares could decline.

Risks Related to the Russian Economy

Emerging markets, such as Russia, are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on our business, financial condition and results of operations.

Emerging markets such as Russia are subject to greater risks than more developed markets, including financial, economic, legal and political risks. Such risks or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment and adversely affect the economies of the countries in which we operate. For example, the current geopolitical situations in Ukraine, Turkey and Syria, as well as volatility in oil prices (to which the Russian economy is particularly sensitive), may continue to have deleterious macroeconomic and other effects on the regions in which we operate, including increased volatility in currency values and a weaker overall business environment. In 2014 and 2015, Russia experienced an economic downturn characterized by substantial depreciation of its currency, sharp fluctuations of interest rates, a decline in disposable income, a steep decline in the value of shares traded on its stock exchanges, a material increase in the inflation rate, and a decline in the gross domestic product. In 2016 and through the first months of 2017 some of those economic trends reversed or moderated, with the ruble strengthening, oil prices increasing, inflation rates declining significantly and the rate of decline in gross domestic product moderating. In addition, international sanctions have been imposed on identified parties and business sectors in Russia in connection with the geopolitical situation in Ukraine, as described below.

In connection with the current economic situation, in 2016 the Russian ruble appreciated against the US dollar by 20%, after depreciating materially during the course of 2014 and 2015. Although our revenues and expenses are both primarily denominated in Russian rubles, including our personnel expenses, we may have to increase our personnel expenses in order to better compete with other companies which denominate their personnel expenses in currencies which appreciate in relation to the Russian ruble. Also, the majority of our rent expenses, including the lease for our Moscow headquarters, are denominated in U.S. dollars, and a major portion of our capital expenditures, primarily for servers and networking equipment, although payable in rubles, is for imported goods and therefore can be materially affected by changes in the value of the ruble. In addition, our expenses related to the development of our business internationally are often denominated in other currencies, including U.S. dollars and Euros, as well as the consideration we have paid in connection with a number of our acquisitions of other businesses to date has been, and future acquisition consideration may be, denominated and paid in U.S. dollars. If the Russian ruble were to experience a prolonged and significant decline in value against foreign currencies, we could face material foreign currency exchange exposure, which may materially adversely affect our business, financial condition and results of operations. See “Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures About Market Risk”

On December 11, 2014, the Central Bank of Russia raised its key rate to 10.5%, followed by a further sharp increase on December 16, 2014 to 17%. During 2015 and 2016 the rate was gradually lowered to 10.0% as of December 31, 2016. Further volatility of interest rates may adversely affect our ability to borrow funds if necessary or desirable, and may adversely affect the spending decisions of both advertisers and consumers. In the second half of 2016 and early 2017, Standard & Poor’s, Moody’s Investment Services and Fitch Ratings all changed the outlook for Russia’s sovereign credit ratings from negative to stable, while just recently, in March 2017, Standard & Poor’s changed its outlook from stable to positive. Fitch Ratings remains the only large credit rating agency to rate Russia in the investment grade category, albeit at the lowest possible level in this rating.

The slowdown of the Russian economy in recent periods has adversely affected our results of operations. In addition, these conditions may continue to depress or encourage volatility in our share price and in equity markets in general.

Adoption and maintenance of embargo, economic or other sanctions, in particular with respect to the conflict in Ukraine, as well as similar measures against the countries in which we operate, may have a material adverse effect on our business, financial condition and results of operations.

Significant uncertainty exists surrounding the current geopolitical situation in Ukraine. The United States, the European Union and certain other countries have imposed economic sanctions on certain Russian government officials, private individuals and Russian companies, as well as “sectoral” sanctions affecting specified types of transactions with named participants in certain industries, including named Russian financial institutions, and sanctions that prohibit most commercial activities of U.S. and E.U. persons in Crimea and Sevastopol. There is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions, or the ultimate outcome of the Ukrainian crisis. Political and economic sanctions may affect the ability of our international customers to operate in Russia, which could negatively impact our revenue and profitability. Sanctions could also impede our ability to effectively manage our legal entities and operations in and outside of Russia. We are domiciled in the Netherlands, while our wholly owned principal operating subsidiary is organized under the laws of the Russian Federation, and several of our other subsidiaries are incorporated in other countries that have imposed economic sanctions on the Russian Federation. Although neither our parent company nor our principal operating subsidiary or other subsidiaries are targets of sanctions, our business has been adversely affected by the impact of sanctions on the broader economy in Russia. In addition, Yandex.Money, our joint venture with Sberbank, is subject to U.S. sectoral sanctions.

In 2015 the Russian President introduced certain restrictions on the import of Turkish goods into Russia, as well as on the operations of Turkish companies in Russia and flight connections between the two countries, some of which were subsequently lifted. On January 1, 2016 restrictions on the import of food products from Ukraine into Russia came into force, and the free trade regime between Ukraine and Russia was suspended by Russian authorities. Although these actions by the Russian authorities do not directly limit our operations in Turkey or Ukraine, if these countries adopt reciprocal measures that affect Russia or Russian companies, such measures could materially adversely affect our operations in Turkey or Ukraine.

Political, civil or military conflicts between Russia and other countries could also negatively affect economies in the region, including the Russian economy. This, in turn, may result in a general lack of confidence among international investors in the region’s economic and political stability and in Russian investments generally. Along with potential official government sanctions on Russia, U.S. and foreign investors may be pressured to reduce or withdraw their investments in Russia. Such circumstances may result in trading volatility, reduced liquidity and significant declines in the price of listed securities of companies with significant operations in Russia, including our Class A shares.

Inflation may increase our costs and exert downward pressure on our operating margins.

The Russian economy has generally been characterized by high rates of inflation in recent years. According to the Russian Federal State Statistics Service, Rosstat, the consumer price index in Russia increased by 11.4% and 12.9% in 2014 and 2015, respectively, and by 5.4% in 2016. Because substantially all of our operations are in Russia, our costs are sensitive to increases in prices in Russia. As a result, high rates of inflation increase our costs, and these increases in cost could negatively impact our operating margin.

Risks Related to Our Business and Industry

We face significant competition from major global and Russian internet companies, including Google and Mail.ru, which could negatively affect our business, financial condition and results of operations.

We face strong competition in various aspects of our business from global and Russian companies that provide internet search and other online services and content. content, including search services.

Currently, we consider our principal competitors to be Google and Mail.ru. In addition, our business units, which include Taxi, Classifieds and E-commerce, face significant competition in their respective business areas. In particular, Taxi faces competition from Uber and Gett in Russia, as well as a variety of other taxi and ride-sharing operators and dispatch services; our Classifieds services face competition from a range of online and offline classified services, including Avito, CIAN (in real estate), and Drom.ru (in automobile sales); and E-commerce faces competition from online retailers and marketplaces, including AliExpress and Avito, as well as offline retailers. In addition, it has

been recently speculated in the press that Sberbank and AliExpress are considering an e-commerce joint venture, which could potentially compete with E-commerce.

Of the large global internet companies, we consider Google to be our principal competitor in the market for desktop and mobile internet search, and for text-basedperformance‑based advertising, online advertising network revenues, advertising intermediary services, distribution arrangements and other services. Google'sAccording to Liveinternet.ru, Google’s share of the Russian search market, based on search traffic generated, was 27.2% for February 2014 and 26.2%37.2% for the full year 2013,2016, compared with our market share of 61.9% and 61.8%, respectively, according to Liveinternet.ru.56.4%. Google launched its Russian-language search engine in 2001, and opened its first office in Russia and introduced Russian-language morphology-based search capabilities in 2006. It conducts extensive online and offline advertising campaigns in Russia. In recent periods,years, Google has also aggressively marketed its products and services, including Chrome browser in Russia, and has taken steps to attempt to ensure thatwhich its search engine is the default search function, on its browser, which has createdmobile application, as well as maps and navigation products, leading to increased competition. In addition, with

With Android, its popular mobile platform, Google may exertexerts significant influence over the increasingly important market for mobile and location-basedlocation‑based search and advertising, including through its global arrangements with manufacturers of mobile devices and network operators to preinstall on an exclusive basis a set of Google'sGoogle’s mobile applications. We expect that Google will continue to use its brand recognition and global financial and engineering resources to compete aggressively with us. In addition to Google, we also face competition, albeit less intense, from the Russian and international websitesbusinesses of Microsoft and Yahoo!

See also “—The competition to capture market share on mobile devices is intense, and if we are not successful in achieving substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations could be adversely affected.”

On the domestic level,side, our principal competitor is Mail.ru.Mail.ru Group. Although we power paid search on Mail.ru Group properties and monetize a number of Mail.ru Group properties through our Yandex Advertising Network, we also compete with Mail.ru in the marketGroup for displayonline advertising budgets, allocated between social networks and other services.search. In addition, Mail.ru Group offers a wide range of internet services, including the most popular Russian web mail service, and many other services that are comparable to ours. Mail.ru'sMail.ru’s search market share was 8.5%6.3% and 8.6%5.4% in the full years 20122015 and 20132016, respectively. We also compete with Russian online advertising networks, such as Begun, which direct advertising to a number of popular Russian websites.

 Although we have partnerships with a number of social networking sites such as Facebook, Twitter, Vkontakte and Mail.ru's Odnoklassniki and My World, and serve ads on some of these sites, we also view them as increasingly significant competitors. Such sites provide users with a wide range of information and services similar to those we offer, including search, real-time news and location-based information and updates. These sites derive a substantial portion of their revenues from online advertising and are experimenting with innovative ways of monetizing user traffic. In light of their large audiences and the significant amount of information they can access and analyze regarding their users'users’ needs, interests and habits, we believe that they may be able to offer highly targeted advertising that could create increased competition for us. The popularity of such sites may also reflect a growing shift in the way in which people find information, get answers and buy products, which may create additional competition to attract users. We also compete with other destination websites, which are sites that users

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access primarily for content rather than search, that seek to increase their search-related traffic, as well as start-ups and other established companies that are developing search technologies and other internet services.

We cannot guarantee that we will be able to continue to compete effectively with current and future internet companies that may have greater ability to attract and retain users, greater name recognition, more personnel and greater financial and other resources. If our competitors are successful in providing similar or better search results and other internet services compared with those we offer, we could experience a significant decline in user traffic. Any such decline in traffic could negatively affect our business, financial condition and results of operations.

We generate almost all of our revenues from advertising, whichThe competition to capture market share on mobile devices is cyclical in nature,intense, and any reduction in spending by or loss of advertisers would materially adversely affect our business, financial condition and results of operations.

        In the past three years, we generated on average more than 97% of our revenues from advertising. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns, and can therefore fluctuate significantly. During the 2008/2009 global economic crisis, total advertising spending in Russia declined by 28% in ruble terms, from 2008 to 2009, while the growth in online advertising expenditures slowed , according to AKAR. The table below provides annual online and total advertising expenditures in Russia from 2009 to 2013:

        Although forecasts for online advertising spending in Russia indicate sustained annual growth through 2015, we anticipate that the rate of such growth will decelerate. Any decreases in or delays in online advertising spending due to economic conditions, or otherwise, would materially adversely impact our business, financial condition and results of operations.

Any decline in the internet as a significant advertising platform in the countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.

        We generate almost all our revenues from the sale of online advertising in Russia. The level of spending on advertising in Russia remains relatively low compared to that in more developed countries, and the use of the internet as a marketing channel is at a relatively early stage. The internet and broadband penetration rates in Russia are also relatively low compared to those in more developed countries. The internet competes with traditional advertising media, such as television, print, radio and outdoor advertising. Although advertisers are becoming more familiar with online advertising over recent years, some of our current and potential customers have limited experience with online advertising, and have not historically devoted a significant portion of their marketing budgets to online marketing and promotion. As a result, they may be less inclined to consider the internet effective in promoting their products and services compared with traditional media.

        Any decline in the appeal of the internet generally in Russia or the other countries in which we operate, including potential decline caused by increasing governmental regulation of the internet, whether as a result of the growth in popularity of other forms of media, a decline in the attractiveness of the internet as an advertising medium or any other factor, could have a material adverse effect on our business, financial condition and results of operations.

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More people are using mobile and other devices, rather than personal computers, to access the internet and search for information. Ifif we are not successful in offeringachieving substantial reach among users and monetizing popular search and other services on these mobile devices, our business, financial condition and results of operations could be adversely affected.

        The number of people who accessUsers are increasingly accessing the internet through mobile and other devices rather than desktop and laptop personal computers, including mobile phones,through smartphones, wearable devices, and handheld computers such as netbooks and tablets, as well as through video game consoles and television set-topset‑top devices. Such devices has increased significantly in the past few years. The lower resolution, functionality,have different characteristics than desktop and memory associated with mobile devices make thelaptop personal computers (including screen size, operating system, user interface and use ofpatterns). Tailoring our products and services throughto such devices more difficultrequires particular expertise and the expenditure of significant resources. The versions of our products and services developed for these devices, including the advertising solutions we offer, may not be compellingless attractive to users, advertisers, manufacturers or distributors of devices. devices than those offered by our competitors or than our desktop offerings. The percentage of our total search traffic that was generated from mobile devices increased from approximately 27% in the fourth quarter of 2015 to approximately 31% in the fourth quarter of 2016, while the percentage of our search revenues generated from mobile devices increased from approximately 19% to approximately 25% between those periods.

Each manufacturer or distributor of mobile or other devices may establish unique technical standards for its devices, and as a result our products and services may not work or be viewable on these devices as a result.devices. Some manufacturers may also elect not to include our products on their devices, or may be prohibited from doing so pursuant to their agreements with other parties.

In February 2015, we made a formal request to the Russian Federal Antimonopoly Service (FAS) to open an investigation into whether Google is using its dominant position to promote its search and other services bundled into a single package for pre installation by device manufacturers, as well as employing exclusive dealing and other restrictive practices to increase its search market share and ensure the presence of its other services on Android devices. In September 2015, FAS determined that Google had breached Russian antitrust laws. Google was ordered by FAS to refrain from anti-competitive behavior and to take action to restore competition and allow third party services such as Yandex search to be pre-installed on Android devices. Google appealed FAS’s decision to the Arbitrazh Court of Moscow and then to the Ninth Arbitrazh Court of Appeal: both appeals were unsuccessful for Google. Google is further appealing the FAS’s decision.  There is no assurance that following a final decision from the court we will succeed in maintaining or materially increasing our market share on mobile devices.

In addition, search queriesconsumers are increasingly being undertakenaccessing content directly via "apps"applications, or “apps”, tailored to particular mobile devices or in closed social media platforms, which could affect our share of the search market over time. As new devices and platforms are continually being released, it is difficult to predict the problemschallenges we may encounter in adapting our products and services and developing competitive new products and services. In 2014, we released Yandex.Kit, a firmware forSee also “—As the internet evolves, an increasing amount of online content may be held in closed social networks, mobile devices on Android operating system, containing a user interfaceapps or stored in proprietary document formats, which may limit the effectiveness of our search technology, which could adversely affect our brand, business, financial condition and selectionresults of Yandex's applications and services to be pre-installed on mobile devices by manufacturers.operations.”

We expect to continue to devote significant resources to the creation, support and maintenance of mobile products and services. If we are unable to attract and retain a substantial number of device manufacturers, distributors and users to our products and services, or if we are slow to develop products and technologies that are more compatible with such devices and platforms, we will fail to capture the opportunities available as consumers and advertisers transition to a dynamic, multi-screenmulti‑screen environment. Furthermore, given the importance of distribution and application pre-installationpre‑installation arrangements with the most popular device manufacturers for successful operation of our business, failure to reach such arrangements may adversely affect our business, financial condition and results of operations.

We expect the rate of growth of our revenues to be lower in the future and we may experience downward pressure on our operating margin.

We expect that our revenue growth rate will continue to decline over time as a result of a number of factors, including continuing macroeconomic challenges in Russia, challenges in maintaining our growth rate as our revenues increase to higher levels, increasing competition, changes in the nature of queries, the evolution of the overall online advertising market and the declining rate of growth in the number of internet users in Russia as overall internet penetration increases.

Other factors which may cause our operating margin to fluctuate or decline include:

We generate almost all of our revenues from advertising, which is cyclical and seasonal in nature, and any reduction in spending by or loss of advertisers would materially adversely affect our business, financial condition and results of operations.

In the past three years, we generated on average more than 95% of our revenues from advertising. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns, and can therefore fluctuate significantly. According to AKAR, the rate of growth in online advertising expenditures was 24% in the nine months of 2016 compared to the similar period of 2015, up from a growth rate of 15% in 2015 compared with 2014 and a growth rate of 18% in 2014 compared with 2013. AKAR data for the full year of 2016 was not publicly available as of March 17, 2017.

Any decreases in online advertising spending due to economic conditions, or otherwise, could materially adversely impact our business, financial condition and results of operations. Additionally, volatility in international oil prices may continue to adversely affect the Russian economy. Any further potential deterioration in the economic conditions in Russia may adversely affect total advertising spending in Russia, which, in turn, would materially adversely affect our operating results.

Advertising spending and user traffic also tend to be seasonal, with internet usage, advertising expenditures and traffic historically slowing down during the months, when there are extended Russian public holidays and vacations, and increasing significantly in the fourth quarter of each year. For these reasons, comparing our results of operations on a period‑to‑period basis may not be meaningful, and past results should not be relied upon as an indication of future performance.

We rely on third party partners for a material portion of our revenues and for expanding our user base via distribution arrangements. Any failure to obtain or maintain such relationships on reasonable terms could have an adverse effect on our business, financial condition and results of operations.

Revenues from advertising on our ad network partner websites represented 27.1% of our online advertising revenues in 2016 compared with 26.0% in 2015. This increase was driven by the addition of new advertising partners to our ad network as well as by improved targeting capabilities, which we introduced in the first half of 2016. We consider our ad partner network to be important for the continued growth of our business. Our users can switchagreements with our network partners, other than our agreement to power paid search results on Mail.ru, are generally terminable at any time without cause. Our competitors could offer more favorable terms to our competitorscurrent or potential network partners, including guaranteed minimum revenues or other more advantageous revenue‑sharing arrangements, in an effort to take market

share away from us. Additionally, some of our partners in the Yandex ad network, such as Mail.ru and Microsoft Bing, compete with us in one or more areas and may terminate their agreements with us in order to develop their own businesses. If our network partners decide to use a competitor’s advertising services, our revenues would decline.

Many of our key network partners operate high‑profile websites, and we derive tangible and intangible benefits from this affiliation, such as increased numbers of users, extended brand awareness and greater audience reach for our advertisers. If our agreements with any of these partners are terminated or not renewed and we do not replace those agreements with comparable agreements, our business, financial condition and results of operations would be adversely affected.

The number of paid clicks and amount of revenues that we derive from our partners in the Yandex ad network depends on, among other factors, the quality of their websites and their attractiveness to users and advertisers. Although we screen new applicants, favor websites with high‑quality content and stable audiences, and strive to monitor the quality of the network partner websites on an ongoing basis, these websites are operated by independent third parties that we do not control. If our network partners’ websites deteriorate in quality or otherwise fail to provide interesting and relevant content and services to their users, this may result in reduced attractiveness to their users and our advertisers, which may adversely impact our business, financial condition and results of operations.

To expand our user base and increase traffic to our sites and mobile applications, we enter into arrangements with leading software companies and device manufacturers for the distribution of our services and technology. In particular, we have agreements, on a co‑marketing basis, with certain internet browsers. As new methods for accessing the internet become available, including through new digital platforms and devices, we may need to enter into new or amended distribution agreements. See also “—The competition to capture market share on mobile devices is intense, and if we are not successful in achieving substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations could be adversely affected.”

Our most significant distribution partner in 2016 was Opera, which offers mobile and desktop browsers, and where Yandex is the default search in certain search entry points. Each of our other distribution partners constitutes less than 10% of our total distribution traffic acquisition costs. If we are unable to continue our arrangements with Opera, or maintain existing or enter into comparable arrangements with new distribution partners, particularly for the distribution of our search and other services on mobile devices, this would likely have a negative effect on our search market share over time. In the future, existing and potential distribution partners may not offer or renew distribution arrangements on reasonable terms for us, or at no cost.all, which could limit our ability to maintain and expand our user base, and could have a material adverse effect on our business, financial condition and results of operations.

As the Russian internet market matures, our future expansion will increasingly depend on our ability to generate revenues from new businesses, new business models or in other markets. If we do not continue to innovate and provide services that are useful and attractive to our users, we may notbe unable to retain them and may become less attractive to our advertisers, which could adversely affect our business, financial condition and results of operations.

As internet usage has spread in Russia, the rate of growth in the number of internet users has been declining. Our success depends on providing search and other services that make using the internet a more useful and enjoyable experience for our users. Our competitors continuously develop innovations in search and other services, as well as online advertising services. As search technology continues to develop, our competitors may be able to offer search capabilities that are, or that are seen to be, substantially similar to, or better than, ours. This may force usAs our core market matures, we will need to competeprovide new services, further exploit non‑core business models, such as our Taxi, E-commerce and Classifieds business units, or expand into new geographic markets in different waysorder to continue to grow our revenues at previously achieved levels. The cost we incur in these efforts, both in terms of product development expenses and expend significant resources to remain competitive.advertising and marketing costs, can be significant.

If we are unable to continue to develop and provide our users with quality, up-to-dateup‑to‑date services, and to appropriately time themthe services with market opportunities, or if we are unable to maintain the quality of such services, our user base may not grow, or may decline. Further, if we are unable to attract and retain a substantial share of internet traffic generated by mobile and other digital devices, or if we are slow to develop services and technologies that are compatible with such devices, our user base may not grow or may decline.

If our users move to our competitors, we will also become less attractive to advertisers and therefore to Yandex ad network partners, both of whichpartners. This could adversely affect our business, financial condition and results of operations.

Distribution arrangements with third parties are an important avenue for expanding our user base, and any failure to obtain or maintain such relationships on reasonable terms could have an adverse effect on our business, financial condition and results of operations.

        To expand our user base and increase traffic to our sites and mobile applications, we enter into arrangements with leading software companies for the distribution of our technology. In particular, we have agreements, on a co-marketing basis, with certain internet browsers. In addition, several mobile device manufacturers include Yandex as the default search engine on certain models of handsets in Russia. As new methods for accessing the internet become available, including through new digital platforms and devices, we may need to enter into new or amended distribution agreements.

        Our largest distribution partners in 2012 were Opera and Mozilla (which offers the Firefox browser). In July 2012, Mozilla switched to a different default search provider in its new version of the Firefox browser in Russia, although we continued to share revenues with respect to users of the previous version of the Firefox browser. During 2012, we entered into a multi-year extension of our distribution agreement with Opera, which remained our most important distribution partner in 2013. If we are unable to continue our arrangement with Opera, or enter into comparable arrangements with new distribution partners, this would likely have a negative effect on our search market share over time.

        In the future, existing and potential distribution partners may not offer or renew distribution arrangements on reasonable terms for us, or at all, which could limit our ability to maintain and expand our user base, and could have a material adverse effect on our business, financial condition and results of operations.

We expect the rate of growth of our revenues to be lower in the future and we may experience downward pressure on our operating margin.

        The effectiveness of text-based advertising as a medium has contributed to the rapid growth of our business since our inception. Advertising spending continues to shift from offline to online as the internet evolves and we expect that our business will continue to grow. However, we expect that our revenue growth rate will continue to decline over time as a result of a number of factors, including challenges in maintaining our growth rate as our revenues increase to higher levels, increasing competition, changes in the nature of queries, the evolution of the overall online advertising market and the declining rate of growth in the number of internet users in Russia as overall internet penetration increases.

        Other factors which may cause our operating margin to fluctuate or decline are:

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the percentage of our advertising revenues that we derive from the Yandex ad network compared with our own websites. As our Yandex ad network grows, our operating margin generally declines because the operating margin we realize on revenues generated from partner websites is significantly lower than the operating margin generated from our own websites. We concluded an agreement with Mail.ru in July 2013 pursuant to which we power paid search on Mail.ru. Although this arrangement resulted in an increase in the aggregate share of text-based advertising that we serve in Russia, it exerted downward pressure on our margins. The margin we earn on revenue generated from the Yandex ad network could also decrease in the future if we are required to share with our partners a greater percentage of the advertising fees generated through their websites;



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increased depreciation and amortization expense related to recent capital expenditures for many aspects of our business, particularly the expansion of our data centers to support growth in both our current and new markets;

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relatively higher spending on advertising and marketing to further enhance our brand and promote our services in Russia, to build brand awareness in Turkey and to respond to competitive pressures, if these efforts do not drive revenue growth in the manner we anticipate;



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expenses in connection with the launch of new products and related advertising and marketing efforts, such as our Yandex browser, which may not result in the anticipated increase in revenues or market share;



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the possibility of higher fees or revenue sharing arrangements with our distribution partners that, for example, distribute our browser toolbar or search bar or otherwise direct search queries to our website. We expect to continue to expand the number of our distribution relationships in order to increase our user base and to make it easier for our existing users to access our services; and



•

costs incurred in our international expansion efforts until we succeed in building the user base necessary to begin generating sufficient revenues in these markets to earn accretive operating margins there.

        See "Operating and Financial Review and Prospects—Key Trends Impacting Our Results of Operations."

As the growth rates of the Russian internet market mature, our future expansion will increasingly depend on our ability to generate revenues from new business models or in other markets.

        As internet usage has spread in Russia, the rate of growth has been declining. The number of users increased by 17% from fall 2010 to fall 2011, 12% from fall 2011 to fall 2012, and 9% from fall 2012 to fall 2013, according to the Public Opinion Foundation of Russia, or FOM. As our core market matures, we will need to further exploit new business models, such as e-commerce, or expand in new geographic markets in order to continue to grow our revenues. Our efforts in this regard may not be successful, which would adversely affect our business, financial condition and results of operations.

We rely on our Yandex ad network partners for a material portion of our revenues and benefit from our relationships with them. If we lose these partners, or the quality of these partners decreases, it would adversely affect our business, financial condition and results of operations.

        Revenues from advertising on our ad network partner websites represented 20.3% of our advertising revenues in 2013, compared with 17.4% in 2012. This increase reflects in part the impact of our agreement to power paid search results on Mail.ru, which we entered into in July 2013. We consider our ad partner network to be critical to the future growth of our business. Our agreements with our network partners, other than the agreement with Mail.ru, are generally terminable at any time without cause. Our competitors could offer more favorable terms to our current or potential network partners, including guaranteed minimum revenues or other more advantageous revenue-sharing arrangements, in an effort to take market share away from us. Additionally, some of our partners in the Yandex ad network, such as Mail.ru and Microsoft Bing, compete with us in one or more areas and may terminate their agreements with us in order to develop their own businesses. If our network partners decide to use a competitor's advertising services, our revenues would decline.

        Many of our key network partners operate high-profile websites, and we derive tangible and intangible benefits from this affiliation, such as increased user numbers, extended brand awareness and greater audience reach for our advertisers. If our agreements with any of these partners are terminated or not renewed and we do not replace those agreements with comparable agreements, our business, financial condition and results of operations would be adversely affected.

        The number of paid clicks and amount of revenues that we derive from our partners in the Yandex ad network depends on, among other factors, the quality of their websites and their attractiveness to

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users and advertisers. Although we screen new applicants and favor websites with high-quality content and stable audiences and strive to monitor the quality of the network partner websites on an ongoing basis, these websites are operated by independent third parties that we do not control. If our network partners' websites deteriorate in quality or otherwise fail to provide interesting and relevant content and services to their users, this may result in reduced attractiveness to their users and our advertisers, which may adversely impact our business, financial condition and results of operations.

Our business depends on a strong brand and failingour ability to license, acquire or create compelling content at reasonable costs. Failing to maintain and enhance our brand and offering compelling content would harm our ability to expand our base of users, advertisers and network partners and would materially adversely affect our business, financial condition and results of operations.

We believe that the brand identity that we have developed through the strength of our technology, and our user focus and in particular, our ability to deliver compelling content, has significantly contributed to the success of our business. We license much of our content from third parties, such as music, news items, weather reports and TV program schedules. If we are unable to maintain and build relationships with third‑party content providers this would likely result in a weakening of our brand and a loss of user traffic. In addition, we may be required to make substantial payments to third parties from whom we license or acquire such content. An increase in the prices charged to us by third‑party content providers would adversely affect our business, financial condition and results of operations.

We also believe that maintaining and enhancing the Yandex brand, including through continued significant marketing efforts, is critical to expanding our base of users, advertisers, advertising network partners, and other business partners. Maintaining and enhancing our brand will depend largely on our ability to continue to be a technology leader and a provider of high-quality, reliable services, which we may not continue to do successfully.

        In July 2013, we sold to Sberbank a 75 percent (less one ruble) interest in ourOur Yandex.Money business and entered intooperates through a joint venture arrangement with Sberbank. Recently, it has been reported that Sberbank in respect of the operation of the Yandex.Money business,is considering an e-commerce joint venture with AliExpress, which continues to operate under the Yandex.Money brand.could potentially compete with E-commerce, and which may adversely affect our brand and business. Although we have sought to implement appropriate controls and protections, as the minority partner in thisthe Yandex.Money joint venture we may have limited ability to ensure that the business is always operated in a manner that is consistent with the broader Yandex brand.

        IfOur carve‑out of certain of our services into newly created subsidiaries (business units), which we commenced in 2015, may also require additional efforts in order to maintain consistent use of our brand. Maintaining and enhancing our brand, especially in relation to mobile services, will depend largely on our ability to continue to be a technology leader and a provider of high‑quality, reliable services, which we may not continue to do successfully.

Many of our content licenses with third parties are non‑exclusive. Accordingly, other websites and other media such as radio or television may be able to offer similar or identical content. This increases the importance of our ability to aggregate compelling content in order to differentiate Yandex from other businesses.

Additionally, if we or our Yandex.Money joint venture partner fail to maintain and enhance the Yandex brand, or if we incur excessive expenses in our efforts to do so, our business, financial condition and results of operations would be materially adversely affected.

We spend significant resources expanding and enhancing our service offerings, and if these new or enhanced services are not widely adopted by If other companies make available competitive content, the number of users our business, financial condition and results of operations could be adversely affected.

        We continuously work to develop new and enhanced services to broaden and improve the overall quality of our service offerings. The cost we incur in these efforts, both in terms of product development expenses and advertising and marketing costs, can be significant. For instance, we incurred considerable development and marketing expenses in connection with launching our Yandex browser in the second half of 2012. Our Yandex browser has been gaining market share and, in February 2014, had a 6.8% visitors share of the browser market in Russia, according to Liveinternet.ru. There is strong competition in the browser market and we cannot guarantee that our browser's market share will continue toservices may not grow as anticipated, or maintain its current position. If our new or enhanced services are not widely adopted by users, our business, financial condition and results of operations could be adversely affected.may decline.

If we fail to manage effectively the growth of our operations, our business, financial condition and results of operations could be adversely affected.

We have experienced, and continue to experience, continuous growth in our operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We carved out certain of our services into newly created subsidiaries, which we refer to as business units, in order to streamline the growth of those services. Management of the business units requires additional administrative effort. We have limited operational, administrative and financial resources, which may be inadequate to sustain the growth we seek to achieve. If we do not effectively manage our growth,

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the quality of our services could suffer, which could adversely affect our brand, business, financial condition and results of operations.

As our user and advertiser bases expand, we will need to continue to increase our investment in technology, infrastructure, facilities and other areas of operations, in particular product development, and sales and marketing. As a result of such growth, we will also need to continue improvingto improve our operational and financial systems and managerial control and procedures. We will have to maintain close coordination among our technical, accounting, finance, marketing and sales personnel. If the improvements are not implemented successfully, our ability to manage our growth will be impaired and we may have to make significant additional expenditures, which could harm our business, financial condition and results of operations.

We will need to make new arrangements for our Russian headquarters premises before our current lease expires in 2021, which may result in material expenses and distraction of management attention.

Our Russian headquarters are currently located in approximately 55,000 square meters of rented property in central Moscow, with a lease expiring in 2021. In February 2016, we announced that we entered into an agreement, pursuant to which we were supposed to become the sole owner of a newly-created company which was to hold title to the office complex in Moscow that houses the Yandex Group’s Russian headquarters. In September 2016,  we terminated this agreement. As a consequence, once our lease expires, we will need to make alternative arrangements for our Russian headquarters, which may include negotiating a new lease for our current premises, moving to new leased premises, or purchasing or developing our own premises. If we seek to negotiate a new lease for our current or new premises, we may be unable to secure favorable terms, and may be required to agree to rent denominated in, or linked to, U.S. dollars, which would subject us to foreign exchange risk. If we decide to purchase or develop our own premises, we may incur substantial up-front expenses and may encounter challenges in managing or coordinating a development process outside our area of core competence.

Our corporate culture has contributed to our success, and if we cannot maintain the focus on teamwork and innovation fostered by this environment, our business, financial condition and results of operations would be adversely affected.

We believe that a critical contributor to our success has been our corporate culture, which values and fosters teamwork and innovation. As our business matures, and we grow, and are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture. ThisWe commenced the carve‑out of certain of our services (Taxi and Classifieds in 2015 and E-commerce in 2016) into newly created subsidiaries (business units) spun off from our main operating subsidiary, in order in part to maintain the “start-up spirit” and provide greater strategic and operational focus for these units. Our efforts in maintaining our corporate culture may not be successful, which would adversely affect our business, financial condition and results of operations. In particular, the spin‑off of certain business units may cause the loss of some of our clients, or disruption in the provision of the services that are being carved out, and may require additional attention from our management.

The loss of any of our key personnel or a failure to attract, retain and motivate qualified personnel, may have a material adverse effect on our business, financial condition and results of operations.

Our success depends in large part upon the continued service of key members of our management team and technical personnel, as well as our continued ability to attract, retain and motivate other highly qualified engineering, programming, technical, sales, customer support, financial and managerial personnel.

Although we attempt to structure employee compensation packages in a manner consistent with the evolving standards of the markets in which we operate and to provide incentives to remain with Yandex, including equity awards under our employee incentive plan, we cannot guarantee that we will be able to retain our key employees. A number of our senior employees exercised share options in connection with our initial public offering and made significant gains, while a significant portion of our outstanding equity awards held by key employees have become, or will soon become, substantially vested. Although we grant additional equity awards to management personnel and other key employees from time to time, employees may be more likely to leave us after their initial award fully vests, especially ifvests. Depreciation of the market value of our shares have significantly appreciatedcould also make such equity awards less effective in value relative toretaining our key employees, especially for options issued above the exercisecurrent trading price. If any member of our senior management team or other key personnel should leave our company,group, our ability to successfully operate our business and execute our business strategy could be impaired. We may also have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees.

The competition for software engineers and qualified personnel who are familiar with the internet industry in Russia is intense. We may encounter difficulty in hiring and/or retaining highly talented software engineers to develop and maintain our services. There is also significant competition for personnel who are knowledgeable about the accounting and legal requirements related to a NASDAQ listing, and we may encounter particular difficulty in hiring and/or retaining appropriate financial staff needed to enable us to continue to comply with the internal control requirements under the Sarbanes-OxleySarbanes‑Oxley Act and related regulations.

Any inability to successfully retain key employees and manage our personnel needs may have a material adverse effect on our business, financial condition and results of operations.

Growth in our operations internationally may create increased risks that could adversely affect our business, financial condition and results of operations.

We have limited experience with operations outside Russia, and in 20132016 derived only approximately 7%8.3% of our revenues from advertiserscustomers outside Russia. Part of our future growth strategy is to expand our operations geographically on an opportunistic basis. Our geographic expansion efforts generally require the expenditure of significant costs in the new geography prior to achieving the market share necessary to support the commercialization of our services, which allows us to begin generating revenues in the new geography. For example, in 2011 we launched operations in Turkey. In January 2014, our share of the internet search market in Turkey was 4% according to comScore qSearch and we have generated only nominal revenues there. Our ability to manage our business and conduct our operations across a broader range of geographies will require considerable management attention and resources and is subject to a number of risks relating to international markets, including the following:

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challenges caused by distance, language and cultural differences;



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managing our relationships with local partners should we choose to adopt a joint venture approach in our international expansion efforts;



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credit risk and higher levels of payment fraud in certain countries;



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pressure on our operating margins as we invest to support our expansion;



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currency exchange rate fluctuations and our ability to manage our currency exposure;



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foreign exchange controls that might prevent us from repatriating cash earned in certain countries;



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legal risks, including potential of claims for infringement of intellectual property and uncertainty regarding liability for services and content;



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adoption of new legislation and regulations, which may adversely impact our operations or may be applied in an arbitrary manner;



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potentially adverse tax consequences;



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deleterious changes in political environment; and



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higher costs and greater management time associated with doing business internationally.

In addition, compliance with complex and potentially conflicting foreign and Russian laws and regulations that apply to our international operations may increase our cost of doing business and may interfere with our ability to offer, or prevent us from offering, our services in one or more countries. These numerous laws and regulations include import and export requirements, content requirements, trade restrictions, tax laws, economic sanctions, internal and disclosure control rules, data protection, data retention, privacy and filtering requirements, labor relations laws, U.S. laws, such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations may result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot assure you that our employees, contractors or agents will not violate our policies. Any such violations may result in prohibitions on our ability to offer our services in one or more countries, and may also materially adversely affect our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, financial condition and results of operations.

Fluctuations in currency exchange rates, particularly depreciation of the Russian ruble, may materially adversely affect our business, financial condition and results of operations.

        The Russian ruble has experienced significant fluctuations against foreign currencies, including the U.S. dollar, in recent years and, in particular, the Russian ruble has declined materially against the U.S. dollar in recent months. In 2013, the Russian ruble depreciated against the U.S. dollar by approximately 8%, and was on average 2% lower than the average value of the Russian ruble compared to the U.S. dollar during 2012. The currency exchange rate as of December 31, 2013 was RUR 32.7292 to $1.00 and, as of March 31, 2014, the value of the Russian ruble as compared to the U.S. dollar had declined to RUR 35.6871 to $1.00. Although our revenues and expenses are both primarily denominated in Russian rubles, the majority of our rent expenses, including the lease for our Moscow headquarters, are denominated in U.S. dollars. Additionally, a major portion of our capital expenditures, primarily for servers and networking equipment, although payable in rubles, are imported and can therefore be materially affected by changesAny decline in the U.S. dollar to Russian ruble exchange rate. If the Russian ruble were to experience a prolonged and significant decline against foreign currencies, we could face material foreign currency exchange exposure, which may materially adversely affect our business, financial condition and results of operations. See "Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures about Market Risk."

Financial results for any particular period are not necessarily indicative of results for future periods.

        Our historical results of operations may not be useful in predicting our future results. Our results of operations may fluctuate from period to periodinternet as a result of any of the risk factors described in this Annual Report and, in particular, due to:

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economic conditions generally and those specific to the internet and onlinesignificant advertising both in Russia and globally;



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the level of use of internet search engines to find information;



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the amount of advertising purchased and market prices for online advertising;



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the volume of searches conducted, the amounts bid by advertisers or the number of advertisers that bid in our advertising system;



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our ability to compete effectively for users, advertisers, partner websites and content;



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the proportion of our revenues generated on our websites relative to those generated through the Yandex ad network or through distribution partners, as a result of the revenue-sharing arrangements we enter into and the overall volume of advertising we provide to our partners; and



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the legal framework applicable to regulation of online businesses in Russia and globally.

Due to the seasonal nature of advertising spending, future results of operations may fluctuate from period to period and from quarter to quarter, which may cause our share price to decline.

        Advertising spending and user traffic tend to be seasonal, with internet usage, online spending and traffic historically slowing down during January, May and June and increasing significantlyplatform in the fourth quarter of each year. For these reasons, comparing our results of operationscountries in which we operate could have a material adverse effect on a period-to-period basis may not be meaningful, and past results should not be relied upon as an indication of future performance. Quarterly and annual expenses as a percentage of revenues may be significantly different from historical or projected rates and may fall below market expectations in a given period, which may cause our share price to decline.

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Index spammers could harm the integrity of our search results, which may damage our reputation, cause our users to be dissatisfied with our services and adversely affect our business, financial condition and results of operations.

        So-called "index spammers" seek to develop ways to manipulate internet search results. For example, because our search technology ranks a webpage's relevance based in part on the importance of the websites that link to it, people have attempted to link groups of websites together to manipulate search results. Although we constantly innovate to develop our search technologies to direct users to relevant information, we may be unable to counter such disruptive activity. If our efforts to combat these and other types of index spamming are unsuccessful, our reputation for delivering relevant results could be harmed. This could result in a decline in user traffic, which may adversely affect our business, financial condition and results of operations.

OurWe generate almost all our revenues from the sale of online advertising in Russia. Although the use of the internet as a marketing channel in Russia is maturing, the level of overall spending on advertising in Russia remains relatively low compared to that in other developed countries. Broadband penetration rates in Russia are also relatively low compared to those in some other developed countries. The internet competes with traditional advertising media, such as television, print, radio and outdoor advertising. Although advertisers have become more familiar with online advertising in recent years, some of our current and potential customers have limited experience with online advertising, and have not historically devoted a significant portion of their marketing budgets to online marketing and promotion. As a result, they may be less inclined to consider the internet effective in promoting their products and services compared with traditional media.

Any decline in the appeal of the internet generally in Russia or the other countries in which we operate, whether as a result of increasing governmental regulation of the internet, the growth in popularity of other forms of media, a decline in the attractiveness of the internet as an advertising medium or any other factor, could have a material adverse effect on our business, financial condition and results of operations could be adversely affected byoperations.

If our security measures are breached, malicious applications that interfere with or exploit security flaws in our services.services, or our services are subject to attacks that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.

Third parties have in the past attempted, and may in the future attempt, to use malicious applications to interfere with our users'users’ internet experience, including hijacking queries to our search engine, altering or replacing Yandex search results, or otherwise disrupting our ability to connect with our users. Such interference often occurs without disclosure to or consent from users, resulting in a negative experience that users may associate with Yandex. Such an attack could also lead to the destruction or theft of information, potentially including confidential or proprietary information relating to Yandex’s intellectual property, content and users. For example, if a third party were to hack into our network, they could obtain access to our search code. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users and customers.

Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data. Such security breaches may expose us to a risk of loss of this information, litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation, and potential liability.

In addition, we offer applications and services that our users download to their computersdevices or that they rely on to store information and transmit information to others over the internet. These services are subject to attack by viruses, worms and other malicious software programs, which could jeopardize the security of information stored in a user's computeruser’s device or in our computer systems and networks. These applications may be difficult to remove or disable, may reinstall themselves and may circumvent other applications’ efforts to block or remove them. If our efforts to combat these malicious applications are unsuccessful, or if our services have actual or perceived vulnerabilities, our reputation may be harmed, our user traffic could decline, and our communications with certain users could be impaired, which could adversely affect our business, financial condition and results of operations.

        As with any other internet company, Yandex is at risk of becoming a target of cracking (efforts to defeat security or encryption protections), a distributed denial-of-service attack, or another computer attack, which could result in a temporary closing of the Yandex site or some of its services. Such an attack could also lead to the destruction or theft of information, potentially including confidential or proprietary information relating to Yandex's intellectual property, content and users. For example, if a third party were to hack into our network, they could obtain access to our search code. This information could potentially be valuable to our competitors or to search engine optimizers who are looking to improve their clients' site rankings within our search results pages. We are not presently aware of a situation where our code has been used in a way that would harm us, but we may be faced with such a situation in the future.

Certain technologies could block our ads, which may adversely affect our business, financial condition and results of operations.

        Third parties have in the past, and may in the future, employ technologies to block the display of ads on webpages. Ad-blocking technology, if used effectively, would reduce the amount of revenue generated by the ads we serve and decrease the confidence of our advertisers and Yandex ad network partners in our advertising technology, which may adversely affect our business, financial condition and results of operations.

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If we fail to detect click fraud or other invalid clicks, we may face litigation and may lose the confidence of our advertisers, which may adversely affect our business, financial condition and results of operations.

        We are exposed to the risk of fraudulent and invalid clicks on our ads from a variety of potential sources. Invalid clicks are clicks that we have determined are not intended by the user to access the underlying content, including clicks resulting from click fraud. Click fraud usually occurs when an automated script or computer program is used to imitate a legitimate web browser user clicking on an ad. We monitor our own websites and those of our partners for click fraud and proactively seek to prevent click fraud and filter out fraudulent clicks. To the extent that we are unsuccessful in doing so, we credit our advertisers for clicks that are later attributed to click fraud. If we are unable to stop these invalid clicks, these credits to our advertisers may increase. If we find new evidence of past invalid clicks, we may retroactively issue credits to advertisers of amounts previously paid to our network partners. This negatively affects our profitability, and these invalid clicks may harm our brand.

As the internet evolves, an increasing amount of online content may be held in closed social networks, mobile apps or stored in proprietary document formats, which may limit the effectiveness of our search technology, which could adversely affect our brand, business, financial condition and results of operations.

Social networks are becoming increasingly important players in the internet market, and have a significant degree of control over the manner and extent to which information on their websites can be accessed through third-partythird‑party search engines. For example, in early 2013 we launched our Wonder mobile application in the United States, which enabled personalized search

In addition, a large amount of information on the internet is provided in proprietary document formats such as Microsoft Word and Adobe Acrobat. The providers of the software applications used to create these documents could engineer the document format to prevent or interfere with our ability to access the document contents with our search technology. Information can also be stored in other closed systems, such as mobile apps.

If social or other networks or software providers take steps to prevent their content or documents in their formats from being searchable, such content would not be included in our search results even if the content was directly relevant to a search request. These parties may also seek to require us to pay them royalties in exchange for giving us the ability to search content on their sites, in their networks or documents in their format and provide links thereto in our search results. If these parties also compete with us in the search business, they may give their search technology a preferential ability to search their content or documents in their proprietary format. Any of these results could adversely affect our brand, business, financial condition and results of operations.

We may not be able to prevent others from unauthorized use of our intellectual property rights, which may adversely affect our competitive position, our business, financial condition and results of operations.

We rely on a combination of patents, trademarks, trade secrets and copyrights, as well as nondisclosure agreements, to protect our intellectual property rights. Historically, we did not seekOur patent protection for the intellectual property we have developed. In 2012, we established our patent department which is responsible for developing and implementing our group-widegroup‑wide patent protection strategy in selected jurisdictions. Tojurisdictions, and to date we have filed several dozenmore than 500 patent applications, and industrial designs, some of which more than 100 have already resulted in issued patents.

patents to date. The protection and enforcement of intellectual property rights in Russia and other markets in which we operate, however, may not be as effective as that in the United States or Western Europe. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant infringement of our intellectual property rights could harm our business, our brand and/or

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our ability to compete, all of which could adversely affect our competitive position, our business, financial condition and results of operations.

We may be subject to intellectual property infringement claims, which are costly to defend, could result in significant damage awards, and could limit our ability to provide certain content or use certain technologies in the future.

A number of internet, technology, media and patent-holdingpatent‑holding companies own or are actively developing patents covering search, indexing, electronic commerce and other internet-relatedinternet‑related technologies, as well as a variety of online business models and methods. We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection in certain jurisdictions. As a result, disputes regarding the ownership of technologies and rights associated with online activities are likely to arise in the future. In addition, use of open-sourceopen‑source software is often subject to compliance with certain license terms, which we may inadvertently breach.

With respect to any intellectual property rights claim, we may have to pay damages or compensation and/or stop using technology found to be in violation of a third party'sparty’s rights. We may have to seek a license for the technology, which may not be available on commercially reasonable terms or at all, and may significantly increase our operating expenses. We may be required to develop an alternative non-infringingnon‑infringing technology, which may require significant effort, expense and time to develop. If we cannot license or develop technology for any potentially infringing aspects of our business, we may be forced to limit our service offerings and may be unable to compete effectively. We may also incur substantial expenses in defending against third-partythird‑party infringement claims regardless of the merit of such claims.

We may be subject to claims from our current or former employees as well as contractors for copyright, trade secret and patent-related matters, which are costly to defend and if lost by us could adversely affect our business, financial condition and results of operation.

        The software, databases, algorithms, images as well as patentable results and trade secrets (know-how) that we use for the operation of our services were generally developed, invented or created by our former or current employees or contractors during the course of their employment with us within the scope of their job functions or under the relevant contractor's agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright, related rights as well as rights to file patent applications with respect to such products, and have the intellectual property rights to their further use and disposal subject to compliance with certain requirements set in the Civil Code of Russia. We believe that we have appropriately followed such requirements, but they are defined in a broad and ambiguous manner and their precise application has never been definitively determined by the Russian courts. Therefore, former or current employees or contractors could either challenge the transfer of intellectual property rights over the products developed by them or with their contribution or claim the right to additional compensation for their works for hire and/or patentable results, in addition to their employment compensation. We may not prevail in any such action and any successful claim could adversely affect our business, financial condition and results of operation. Although the exact amount of compensation is not currently regulated by Russian law, the Russian government has previously proposed establishing ade minimis amount of required compensation for works and patentable results created by employees, which, if adopted, may affect the amount and structure of payments to our employees.

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We may be held liable for information or content displayed on, retrieved by or linked to our websites and mobile applications, or distributed by our users,users; or we may be required to block certain content or access to our websites could be restricted; any of which could harm our reputation and business.

The law and enforcement practice relating to the liability of providers of online services for the activities of their users is currently not settled in Russia and certain other countries in which we operate. Claims may be brought against us for defamation, libel, negligence, copyright, patent or trademark infringement, tort (including personal injury), fraud, other unlawful activity or other theories and claims based on the nature and content of information to which we link or that may be posted online via blogs and message boards, generated by our users or delivered or shared through our services, such as email, chat rooms, hypertext links to third-party websites, or video, image and file storage services, including if appropriate licenses and/or rights holder'sholder’s consents have not been obtained. For example, we have previously been involved in litigation regarding alleged copyright infringement in the United States. We are also regularly required to remove content uploaded by users on grounds of alleged copyright infringement, and from time to time we receive requests from individuals who do not want their names or websites to appear in our search results. Third

parties may also seek to assert claims against us alleging unfair competition, data misappropriation, violations of privacy rights or failure to maintain the confidentiality of user data. Our defense of any such actions could be costly and involve significant time and attention of our management and other resources. If any of these complaints results in liability to us, the judgment or settlement could potentially be costly, encourage similar lawsuits, and harm our reputation and possibly our business.

The governments of the countries in which we operate are increasingly developing legislation aimed at regulation of the internet, in many places expanding liability and creating new obligations for companies which operate in the internet. For example, in August 2013,2017 new amendmentsdraft legislation was introduced which, if adopted, could require us to Russian laws, including to the Russian Civil Code, came into effect aimed at the enhancement of intellectual property rights enforcement on the internet. Certain amendments to the Russian Civil Code aimed at information intermediaries liability regime regulation may be construed to establish liability for actions not previously actionable, such asdelist search results linking to allegedly infringing materials. Also,websites that have been blocked in March 2014, the Russian government passed new amendments to the Russian Civil Code which introduced strict liabilityRussia for infringement of intellectual property rights if such infringement is committed in connection with business activities.repeated copyright infringements. New legislation and regulations such as these, may impose additional new requirements on us and our operations and lead to material legal liability, which can be difficult to foresee or limit.

        A further set of lawsAdditional recent legislation in Russia has introduced a system of information and website blocking measures both to protectprevent and stop copyright owners of motion pictures and TV seriesrelated rights infringements and to prevent dissemination of certain types of illegal information, such as child pornography, content encouraging suicides and drug use, and information on minors hurt by illegal actions.actions and extremist information. The regulations generally require notificationa request from the governmental authority to be sent by governmental authorities to the administrator of the website or hosting provider requesting that they take down the allegedly infringing or illegal information prior to blocking the Internet Protocol address of thea particular website. However, legislation whereunder blockingin some cases, such as dissemination of alleged extremist information, mayaccess to such information can be performed by governmental authoritiesblocked without notification or prior to any notification is also currently in effect and being enforced by such authorities.judicial scrutiny. The categories of illegal information subjectto which access can be restricted may be interpreted broadly or be expanded. In certain cases, even removal of illegal information does not eliminate the risk of website blocking or reinstate access to the law may alsoblocked website. For example, Russian legislation allows for permanent blocking of websites for repeated violation of copyright and related rights. There is little clarity as to how this measure will be expanded. Based on these considerations and the uncertaintiesapplied in application of these laws, wepractice. We may be subject to arbitraryunpredictable blocking measures, injunctions or court decisions that may require us to block or remove content and may adversely affect our services and operations.

        Also, in February 2014, the Turkish government amended the law governing relations in the internet and expanded liability and requirements for internet service providers In addition, to ensure compliance with such laws we may be required to commit greater resources, or to limit functionality of our services, which may impact our operations in Turkey. In particular,adversely affect the amended law increases the periodappeal of time within which internet service providers have to retain traffic information, expanded the obligation of internet service providers to respond to information requests from government officials and created new grounds for taking down content and blocking of websites on the internet. Based on the amended law, the Turkish

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government will adopt subordinate regulations which may have further negative impact on our services and operations in Turkey.to our customers.

Our ability to offer our services may be adversely affected by laws and regulations or user concerns regarding privacy and the protection of user data, any of which could materially adversely affect our business, financial condition and results of operations.

        Current or future Russian and foreign laws and regulations may govern the collection, use, sharing and security of data that we receive from our users and partners. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with current practice. If so, we could face fines or orders requiring that we change our operating practices, which in turn could have a material adverse effect on our business, financial condition and results of operations. Increasing public awareness of these issues could lead to further restrictions on the use of such data, which could in turn affect our search performance and therefore our ability to generate advertising revenue. In addition, it is our policy to protect the privacy of our users and to keep confidential the data they provide to us, and as a result we may choose not to exploit certain opportunities to maximize revenues in ways that could jeopardize our users' trust in us in this regard.

        Furthermore, we use cookies and other wide-spread technologies that assist us in improving the user experience and personalization of our products and services and ultimately benefit both our users and advertisers to the extent that we use a certain part of this collected information for behavioral targeting of the advertising. There is no clarity as to whether our practices are compliant with the requirements of applicable data protection legislation in Russia and abroad. There is a risk that such laws may be interpreted and applied in a manner that is not consistent with our current data protection practices.

        Additionally, as our business grows in foreign jurisdictions beyond Russia and our services are offered to foreign users, we may encounter increased pressure from foreign state authorities with respect to production of information related to the users in circumvention of the international legal framework in that area. Any non-compliance with such requests may lead to liability and other adverse consequences.

We rely on third-partythe continued availability, development and maintenance of the internet infrastructure in the countries in which we operate, including third‑party providers for our principal internet connections and the equipment critical to our internet properties and services, and anyservices. Any errors, failures or disruption in the products and services provided by these third parties may materially adversely affect our brand, business, financial condition and results of operations.

Our future success will depend on the continued availability, development and maintenance of the internet infrastructure globally and particularly in the countries in which we operate. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable internet services. Any disruption in the network access provided by third parties or any failure by them to handle current or higher future volumes of use may significantly harm our business. We exercise little control over these third parties, which increases our vulnerability to problems with the services they provide. We have experienced and expect to continue to experience interruptions and delays in service.service from time to time. Furthermore, we depend on hardware and software suppliers for prompt delivery, installation and service of servers and other equipment to deliver our services. The internet infrastructure may also be unable to support the demands placed on it by growing numbers of users and time spent online or increased bandwidth requirements. Government regulation may also limit our access to adequate and reliable internet infrastructure. Any errors, failures, interruptionsoutages or delays experienced in connectionresulting from inadequate internet infrastructure or due to problems with theseour third-party productsproviders could reduce the level of internet usage as well as our ability to provide our services to users, advertisers and services may negatively impact our relationship with users andnetwork partners, which could materially adversely affect our brand, business, financial condition and results of operations.

We may have difficulty scaling and adapting our existing technology architecture to accommodate increased traffic and technology advances or new requirements of our users and advertisers, which could adversely affect our business, financial condition and results of operations.

With some of the most highly visited websites in Russia, we deliver a growing number of services and page views to an increasing number of users. In addition, the services we offer have expanded and changed significantly and are expected to continue to do so in the future to accommodate bandwidth-

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bandwidth‑intensive technologies and means of content delivery, such as interactive multimedia and video. Our future success will depend on our ability to adapt to rapidly changing technologies, to adjust our services to evolving industry standards and to maintain the performance and

reliability of our services. Rapid increases in the levels or types of use of our online services could result in delays or interruptions in our services.

As we expand our services, we will need to continue to invest in new technology infrastructure, including data centers. We may have difficulty in expanding our infrastructure to meet any rising demand for our services, including difficulties in obtaining suitable facilities or access to sufficient electricity supplies, particularly in and around Moscow.supplies. A failure to expand our infrastructure could materially and adversely affect our ability to maintain and increase our revenues and profitability and could adversely affect our business, financial condition and results of operations.

Certain technologies could block our ads, which may adversely affect our business, financial condition and results of operations.

Advertising displayed on our platforms may be interfered with by third parties, which may adversely affect our ability to attract advertisers. For example, third parties have in the past, and may in the future, employ technologies to block the display of ads on webpages. Ad‑blocking technology, if used widely and effectively, would reduce the amount of revenue generated by the ads we serve and decrease the confidence of our advertisers and Yandex ad network partners in our advertising technology, which may adversely affect our business, financial condition and results of operations.

If we fail to detect click fraud or other invalid clicks, we may face litigation and may lose the confidence of our advertisers, which may adversely affect our business, financial condition and results of operations.

We are also exposed to the risk of fraudulent and invalid clicks on the ads we serve from a variety of potential sources. Invalid clicks are clicks that we have determined are not intended by the user to access the underlying content, including clicks resulting from click fraud executed by automated scripts of computer programs. We monitor our own websites and those of our partners for click fraud and proactively seek to prevent click fraud and filter out fraudulent or other invalid clicks. To the extent that we are unsuccessful in doing so, we credit our advertisers for clicks that are later attributed to click fraud. If we are unable to stop these invalid clicks, these credits to our advertisers may increase. This could negatively affect our profitability, and these invalid clicks could result in legal claims or harm our brand.

Our business depends on the accuracy and reliability of our search results and dependability of our other services. A systems failure, technical interference or human error could prevent us from providing accurate search results or ads or reliably deliver our other services, which could lead to a loss of users and advertisers and damage our reputation and materially adversely affect our business, financial condition and results of operations.

Our business depends on our ability to provide accurate and reliable search results which may be disrupted. For example, because our search technology ranks a webpage’s relevance based in part on the importance of the websites that link to it, people have attempted to link groups of websites together to manipulate search results. If our efforts to combat these and other types of “index spamming” are unsuccessful, our reputation for delivering relevant results could be harmed. This could result in a decline in user traffic, which may adversely affect our business, financial condition and results of operations.

Although we have implementedmaintain robust network security measures, our systems are potentially vulnerable to damage or interruption from terrorist attacks, denial-of-servicedenial‑of‑service attacks, computer viruses or other cyber-attackscyber‑attacks or attempts to harm our system, power losses, telecommunications failures, floods, fires, extreme weather conditions, earthquakes and similar events. Our data centers, which we maintain ourselves, are also potentially subject to break-ins,break‑ins, sabotage and intentional acts of vandalism, and to potential disruptions. The occurrence of a natural disaster or other unanticipated problems at our data centers could result in lengthy interruptions in our service, which could reduce our revenues and profits, and our brand could be damaged if people believe our services are unreliable.

From time to time, we have experienced power outages that have interrupted access to our services and impacted the functioning of our internal systems. Although we have installed back-upmaintain back‑up generators, these may not operate properly through a major sustained power outage or their fuel supply could be inadequate. Any unscheduled interruption in our serviceservices places a burden on our entire organization and would result in an immediate loss of revenue. If we experience frequent or persistent system failures on our websites, our reputation and brand could be permanently harmed. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and may be insufficient to reduce the frequency or duration of unscheduled downtime.

        In addition to physical damage and power outages, our systems are also vulnerable to human error. For example, in August 2011 we experienced a network outage resulting from human error, which resulted in more than two hours

Although we test updates before implementation and there were no significant downtime periods in recent years, errors made by our employees in maintaining or expanding our systems may damage our brand and may have a materially adversely affectadverse effect on our business, financial condition and results of operations.

Our business depends on the continued development and maintenance of the internet infrastructure in the countries in which we operate.

        Our future success will depend on the continued development and maintenance of the internet infrastructure globally and particularly in the countries in which we operate. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable internet services. The internet infrastructure may be unable to support the demands placed on it by growing numbers of users and time spent online or increased bandwidth requirements. Any outages or delays resulting from inadequate internet infrastructure could reduce the level of internet

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usage as well as our ability to provide our services to users, advertisers and network partners, which could materially adversely affect our business, financial condition and results of operations.

We may seek to acquire complementary businesses, teams and technologies in the future, and may fail to identify suitable targets, acquire them on acceptable terms or successfully integrate them, which may limit our ability to implement our growth strategy. Acquisition of new businesses may also lead to increased legal risks and other negative consequences which could have an adverse effect on our business, financial condition and results of operations.

We have limited experience with acquisitions,regularly acquire other businesses, technologies and the acquisitions we have made to date have been relatively small. For example, in October 2013 we completed the acquisition of KinoPoisk LLC, the largest and, we believe, most comprehensive Russian language website dedicated to movies, television programs and celebrities. In March 2014 we completed the acquisition of KitLocate Ltd. the developer of an energy efficient geolocation technology for mobile devices. We continue to evaluate selected potential acquisitions and, from time to time, may engage in discussions regarding potential acquisitions. Any of these transactions may be material to our business, financial condition and results of operations.teams. The acquisition and integration of new businesses, or technologies and people pose significant risks to our existing operations, including:

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additional demands placed on our management, who are also responsible for managing our existing operations;



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increased overall operating complexity of our business, requiring greater personnel and other resources;



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difficulties in expanding beyond our core expertise;



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significant initial cash expenditures or share dilution in connection with acquiring and integrating new businesses; and



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legal risks (including potential claims of the counterparty or of third parties), which may result from our lack of expertise in the field of the target's business, an incomplete or improper due diligence, misrepresentations on the part of counterparties, and/or other causes.

The integration of new businesses may be difficult forpresents a varietynumber of reasons,challenges, including differing cultures or management styles, poor financial records or internal controls on the part of the acquired companies, and an inability to establish control over cash flows. Furthermore, even if we are successful in integrating new businesses, expected cost and operating efficiencies may not materialize, the financial benefits from the acquisition may be less than anticipated, and we could be required to record impairment changes in respect of under-performingunder‑performing assets.

Moreover, our growth may suffer if we fail to identify suitable acquisition targets or are outbid by competing bidders. As a NASDAQ-listedNASDAQ‑listed company, we are subject to securities laws and regulations that, in certain circumstances, require that we file with the SEC audited historical financial statements for businesses we acquire that exceed certain materiality thresholds. Given financial reporting practices in Russia and other countries in which we operate, such financial statements and documented systems of internal controls over financial reporting are often not readily available or not capable of being audited to the standards required by U.S. securities regulations. As a result, we may be prevented from or delayed in pursuing acquisition opportunities that our competitors and other financial and strategic investors are able to pursue, which may limit our ability to implement our growth strategy.

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If we are unable to license, acquire or create compelling content at reasonable costs, the number of users of our services may not grow as anticipated or may decline, which would adversely affect our business, financial condition and results of operations.

        Our future success depends in part upon our ability to offer compelling content. We license from third parties much of the content of our services, such as news items, weather reports and TV program schedules. If we are unable to maintain and build relationships with third-party content providers this would likely result in a loss of user traffic. In addition, we may be required to make substantial payments to third parties from whom we license or acquire such content. An increase in the prices charged to us by third-party content providers would adversely affect our business, financial condition and results of operations.

        Further, many of our content licenses with third parties are non-exclusive. Accordingly, other websites and other media such as radio or television may be able to offer similar or identical content. This increases the importance of our ability to aggregate compelling content in order to differentiate Yandex from other businesses. If other companies make available competitive content, the number of users of our services may not grow as anticipated, or may decline.

Our Yandex.Money joint venture may be used for fraudulent, illegal or improper purposes, which could materially adversely affect our brand, reputation, business, financial condition and results of operations.

        TheOur joint venture, Yandex.Money’s, electronic payments system of our Yandex.Money joint venture with Sberbank is susceptible to fraud and to potentially illegal or improper uses, and we have on occasion identified or been informed of such uses in the past. These may include:

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illegal online gambling;



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illegal online gambling;

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fraudulent sales of goods or services or other merchant fraud;

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illicit sales of prescription medications, controlled substances, alcoholic beverages or tobacco products;

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software and other intellectual property piracy;

Our ability to control the day-to-dayday‑to‑day operations of Yandex.Money following completion of the joint venture transaction in July 2013with Sberbank is more limited than was the case while we were the sole owner of this business. If Yandex.Money is unable to prevent, detect or otherwise adequately address fraud or other improper uses of its services, users may lose confidence in the integrity and security of its services, which may result in a reduction in the number of users and transactions. Any negative publicity associated with the Yandex name in connection with such activities, including criminal proceedings against a user who conducts illegal activities using its services, could result in damage to our brand or reputation. If we are unable to manage these risks, our brand, reputation, business, financial condition and results of operations could be materially adversely affected.

Failure to maintain effective customer service may result in customer complaints and negative publicity and may adversely affect our business, financial condition and results of operations.

Customer complaints or negative publicity about our services or those offered by us (including services offered by our business units) or our Yandex.Money joint venture with Sberbank, or breaches of customers'customers’ privacy or of our security

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measures, could diminish consumer confidence in and use of our services. Measures we implement to combat risks of fraud and breaches of privacy and security may be viewed as onerous by our customers or those of our joint venture and damage relations with them. Alternately, should breaches of customers'customers’ privacy or of security measures occur, we could be subject to investigations and claims from the governmental bodies, as well as from our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense, and such expense, if not managed properly, may impact our profitability or that of our Yandex.Money joint venture. Any inability by us or our Yandex.Money joint venture to manage or train our or their customer service representatives properly could compromise our or their ability to handle customer complaints effectively. If we or Yandex.Money fail to maintain effective customer service, our reputation may suffer and we may lose our customers'customers’ confidence, which may adversely affect our business, financial condition and results of operations.

The inherent limitations of the available data regarding internet usage and online advertising may make it difficult to assess our markets and our market position.

We rely on and refer to information and statistics from various third-partythird‑party sources, as well as our own internal estimates, regarding internet usage and penetration and the online advertising markets in the countries in which we operate. The information and statistics used in our industry are subject to inherent limitations reflecting the differing metrics and measurement methods utilized and applied by different sources; for example, data derived from computer usage contrasted to that derived from user surveys. In addition, while we believe that the available data and research on the Russian market is of comparable quality to that available in most developed countries, the data for Ukraine, Kazakhstan and Belarus are generally less consistent and reliable due to more limited measurement methodsthird‑party measurements in those countries.

We may be subject to claims from our current or former employees as well as contractors for copyright, trade secret and patent‑related matters, which are costly to defend and which could adversely affect our business, financial condition and results of operation.

The software, databases, algorithms, images, patentable intellectual property, trade secrets and know‑how that we use for the operation of our services were generally developed, invented or created by our former or current employees or contractors during the course of their employment with us within the scope of their job functions or under the relevant contractor’s agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright and related rights as well as rights to file patent applications with respect to such products, and have the intellectual property rights required for their further use and disposal subject to compliance with certain requirements set out in the Civil Code of Russia. We believe that we have appropriately followed such requirements, but they are defined

in a broad and ambiguous manner and their precise application has never been definitively determined by the Russian courts. Therefore, former or current employees or contractors could either challenge the transfer of intellectual property rights over the products developed by them or with their contribution or claim the right to additional compensation for their works for hire and/or patentable results, in addition to their employment compensation. We may not prevail in any such action and any successful claim, although unlikely to be material, could adversely affect our business and results of operation.

Risks Related to Doing Business and Investing in Russia and Other Countries in which We Operate

The current geopolitical conflict in Ukraine and other civil or military conflicts, or material disruptions in the political relations between Russia and the other countries of the CIS, may adversely affect the Russian economy and the value of investments in Russia, and could harm our business, financial conditions and results of operations.

        Political, ethnic, religious, historical and other differences have, on occasion, given rise to tensions and, in certain cases, military conflict between Russia and other countries of the CIS, and in regions of the Russian Federation. For example, significant tensions are currently ongoing between Russia and Ukraine, where a powerful civil unrest has been gaining momentum since November 2013 and eventually resulted in the ousting of the Ukrainian President in February 2014. In response, on March 14, 2014 the Russian President requested that the upper chamber of the Russian Parliament grant permission for Russia to use military force in Ukraine. The stated goal of such military force is to protect the interests of the sizeable Russian populace of Ukraine and, in particular, that of Crimea, Ukraine's militarily sensitive and ethnically Russian southern province. On March 16, 2014, a referendum held in Crimea resulted in a vote for the region to secede from Ukraine and accede to Russia, and on March 18, 2014, Russia officially annexed the region.

        Significant tensions currently exist between Russia and the West, including the United States and the European Union, as a result of actions related to the Ukrainian crisis. As of March 21, 2014, both the United States and the European Union had imposed sanctions on certain Russian government officials, arms sector figures, others deemed to be working on behalf of senior Russian officials, and, in the case of the United States sanctions, one Russian financial institution. These sanctions include banning visas and freezing their assets. There is still significant uncertainty regarding the extent or timing of any further political or economic sanctions, or the ultimate outcome of the Ukrainian crisis.

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        Political and economic sanctions may affect the ability of our international customers to operate in Russia, which would negatively impact our revenue and profitability. Sanctions could also impede our ability to effectively manage our legal entities and operations outside of Russia. We are domiciled in the Netherlands, while our wholly-owned primary operating subsidiary is organized under the laws of the Russian Federation. In 2013, we collected 7% of our revenues from outside of Russia and we are in the process of constructing a data center in Finland.

        Political, civil or military conflicts between Russia and other countries could also negatively affect economies in the region, including the Russian economy. This, in turn, may result in a general lack of confidence among international investors in the region's economic and political stability and in Russian investments generally. Along with potential official government sanctions on Russia, U.S. and foreign investors may be pressured to reduce or withdraw their investments in Russia. Such circumstances may result in trading volatility, reduced liquidity and significant declines in the price of listed securities of companies with significant operations in Russia, including our Class A shares.

Emerging markets, such as Russia, are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on our business, financial condition and results of operations.

        Emerging markets such as Russia are subject to greater risks than more developed markets, including in some cases, financial, economic, legal and political risks. Such risks or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment and adversely affect the economies of the countries in which we operate. For example, the current circumstances involving Ukraine may have deleterious macroeconomic and other effects on the regions in which we operate, including, among other things, increased volatility in currency values and a weaker overall business environment. In addition, such circumstances may harm or encourage volatility in our share price and in equity markets in general. These emerging market and economies are also subject to rapid change. For these reasons, our business, financial condition and results of operations may be materially adversely affected by any crises in Russia or other emerging markets in which we operate.

Economic crises may materially adversely affect our business, financial condition and results of operations.

        The Russian economy was adversely affected by the global financial and economic crisis that began in the second half of 2008. The total spending on media advertising in Russia decreased by 43% in dollar terms and 27% in ruble terms in 2009 compared to 2008, according to AKAR. Although economic conditions have improved, the medium-term outlook is unsettled and we cannot assure you that the recovery of the economy in Russia and the other countries in which we operate will be sustained. Moreover, any renewed deterioration of the international economic situation would likely negatively impact the economies in the countries in which we operate and, as a result, adversely affect the profitability of our business.

        In addition, the Russian economy is dependent on exports of natural resources, and therefore particularly sensitive to fluctuations in the world prices of crude oil, natural gas and other commodities. A sustained decline in the price of crude oil, natural gas and other commodities may further disrupt the Russian economy and result in reductions in consumer spending and therefore advertising spend.

        Global recession and any downturns in the markets in which we operate could reduce advertising demand, constrain our ability to find new users and advertising customers or retain existing ones and to collect payments from them, and may prevent us from executing our growth strategy. Adverse economic conditions may also hurt our liquidity, which may have a material adverse effect on our business, financial condition and results of operations.

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Inflation may increase our costs and exert downward pressure on our operating margin.

        The Russian economy has generally been characterized by high rates of inflation in recent years. According to the Russian Federal State Statistics Service, Rosstat, the annual inflation rate in Russia was 6.1% in 2011, 6.6% in 2012, and 6.5% in 2013, as measured by the consumer price index. Because substantially all of our operations are in Russia, our costs are sensitive to increases in prices in Russia. As a result, high rates of inflation increase our costs, and these increases in cost could negatively impact our operating margin.

The legal system in Russia and other countries in which we operate can create an uncertain environment for investment and business activity that could have a material adverse effect on the value of our Class A shares, our business, financial condition and results of operations.

The legal framework supporting a market economy remains new and in flux in Russia and the other countries in which we operate and, as a result, the relevant legal systems can be characterized by:

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inconsistencies between and among laws and regulations;



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gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations and a subordinate legal framework;



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selective and inconsistent enforcement of laws or regulations, sometimes in ways that have been perceived as being motivated by political or financial considerations;



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scarce judicial and administrative guidance on interpreting legislation;



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relatively limited experience of judges and courts in interpreting recent commercial legislation as well as in understanding specifics of business operations and international best practices in the sphere of information technology and other areas;



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a perceived lack of judicial and prosecutorial independence from political, social and commercial forces;



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inadequate court system resources;



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rapid or unexpected changes in the legislative framework;



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a high degree of discretion on the part of the judiciary and governmental authorities; and



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poorly developed bankruptcy procedures that are not infrequently abused.

        Furthermore, a range of civil legislation in Russia is currently under review or has recently been adopted. In 2013, several laws were adopted to amend the Russian Civil Code, specifically related to (i) the principle of good faith (which was not previously clearly provided by the Russian Civil Code); (ii) certain aspects of invalidity of transactions; (iii) real estate; (iv) the formalization of a power of attorney; (v) conflicts of laws rules; (vi) pledging of rights and assets and (vii) certain other matters. Other amendments were adopted with regard to intellectual property regulations, including regulation of use of intellectual property rights in the internet and regulation of patents. Such amendments may significantly affect existing business practices and result in additional legal risks related to compliance with newly adopted civil legislation.

        In addition, as is true of civil law systems generally, judicial precedents generally have no binding effect on subsequent court decisions, except in Russia within certain limited authority of the HigherArbitrazh Court that issued rulings and guidelines that were binding on lower courts. However, the current status of rulings and guidelines of the HigherArbitrazh Court is unclear due to recent overall reform and reorganization of Russian judicial system brought about by amendments to the Russian Constitution and legislation in 2014. In accordance with such amendments the HigherArbitrazh Court should be liquidated in mid-2014. All cases within the jurisdiction of the HigherArbitrazh Court will be

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transferred to the Supreme Court of Russia. The Supreme Court of Russia, which through a separate division will handle commercial disputes after the judicial reorganization, and the entire system of courts of common jurisdiction, are known to be more rigid and conservative than the system ofarbitrazh courts. This may result in reconsideration of the previous practices and rulings favorable to business activity (including abovementioned rulings and guidelines issued by the HigherArbitrazh Court) and a significant change of the judicial climate in Russia.

        Not all legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding. Enforcement of Russian court rulings as well as recognition and enforcement of foreign state court awards may prove to be substantially problematic. All of these factors make judicial decisions difficult to predict and effective protection of rights and interests uncertain. Additionally, court claims and governmental prosecutions may be used in furtherance of what some perceive to be political aims.

        In other countries in which we operate, limited and inconsistent enforcement with respect to certain laws and the rapid evolution of their legal systems may result in ambiguities, inconsistencies and anomalies in the application and interpretation of laws and regulations. Any of these factors may result in our being subject to unpredictable fines or requirements, affect our ability to enforce our rights under our contracts or to defend ourselves against claims by others, or result in our being subject to unpredictable requirements, and could have a material adverse effect on our Class A shares and our business, financial condition and results of operations. The fact that we are a high-profilehigh‑profile company may heighten this risk. See "—“—Businesses in Russia especially high-profile companies, may behave on occasion been subject to aggressiveactions by public authorities that some have characterized as unpredictable or arbitrary applicationpolitically motivated.”

Because the range of contradictory or ambiguous laws or regulations, or to politically motivated actions, which could materially adversely affect our business, financial conditionthe services we provide is increasing and results of operation" and—"We face similar risks in other countries."

Thethe legal framework governing internet services and e-commercee‑commerce in Russia and the other countries in which we operateour markets is undeveloped, andevolving, we may be required to haveobtain additional licenses, permits or registrations or to take additional actions in order to conduct our business,comply with other requirements, which may be costly or may limit our flexibility to run our business.

        AlthoughAs we believe thatincrease the range of services and diversify our business we currentlymay have all materialto apply for additional licenses. Maintenance of granted licenses and permitsobtaining new licenses may require us to spend additional resources. Licensing requirements may also limit our flexibility in running our business. Failure to maintain required licenses may significantly limit our ability to conduct our business, courtprovide new services in respect of which these licenses are required.

Court interpretations and the applicability of Russian commercial legislation and regulations in relation to our business can be ambiguous or contradictory and it is possible that the authorities may determine that we are also required to have additional licenses, permits or registrations.registrations to provide our services. For example, we could fall within the following regulations that require receipt of licenses/permits or compliance with certain mandatory procedures:

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Currently, Russian law requiresprocedures with respect to the receipt of a "telematics" license by a company if it provides services for a fee by meansprovision of telecommunications services. We do not charge forservices, the internet services we provide to our usersdelivery of “mass media”, blogging and therefore believe we are not required to hold a telematics license; we do, however, generate revenue from ads directed to our users. It is possible that a Russian court or a government agency may construe our advertising revenue as an indirect "fee" and determine that we are required to hold a telematics license. Additionally, as we may further develop certain user services that would be provided for a fee in the future, we cannot assure you that such services, if developed, would not trigger the licensing requirements referenced above.



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Russian law requires that "mass media" businesses be registered with the applicable governmental authority. Although Russian law does not specifically include internet enterprises in the list of mass media businesses, several internet businesses that publish news have been required to obtain an electronic mass media registration. Our principal operating subsidiary, which operates our search and most of our other user services and online properties, does not

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hold a mass media registration. In November 2011, a legislative amendment was implemented, permitting electronic network publications (websites) to register on a voluntary basis as mass media under the procedures established by the law. We have determined that we are not required to register as a mass media business; however, we cannot assure you that we will not be required to register as a mass media business in the future, especially if the current law changes. Obtaining and maintaining such registration may be burdensome, time-consuming and costly, and may adversely affect our business, financial conditions and results of operations.

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Businesses that use certain encryption technologies in their products and services may be required to obtain a license from the Russian Federal Security Service unless they are covered by the exemptions set out in the licensing regulation approved by the government of the Russian Federation. We are using certain standard encryption protection measures in some of our services such as Yandex.Mail, and although we believe that such use of encryption is excluded from thesetechnologies by businesses.  Such licensing requirements,or compliance processes may be time consuming and expensive and we cannot assure that the regulator may not take a different view.

        We may have to apply for additional licenses, permits or registrations to comply with new or existing legal requirements, which may be costly or may limit our flexibility to run our business. Ifsuccessful in acquiring any newly required licenses.

Additionally, if we fail to obtain and maintain required licenses, permits or registrations or comply with certain mandatory procedures, we may face fines, penalties or sanctions. These

As the legal framework in Russia continues to evolve, we may includebe required to take additional actions in order to comply with new legislation.  In January 2017, for example, a requirementnew law came into force that regulates the provision of online news aggregation services in Russia. In accordance with this law, websites that are used to process and disseminate news information and that are accessed by more than one million users per day must be registered. In addition, providers of news aggregation services are responsible for ensuring the legality and accuracy of the information that can be accessed by their users, unless the news information is reproduced verbatim from news published by registered mass media. The law also limited the ownership of news aggregation services to Russian entities and citizens. Implementation of this law may significantly affect our Yandex.News service and other services which could be used to process and disseminate news information. Although we believe that we permanentlycurrently comply with this law, the regulator may take a different view. Compliance with this law may also require us to spend additional resources and limit our flexibility in providing our services.

Recent amendments to Russian legislation regulating the use of cash registers changed the rules about processing payments received for sale of goods or temporarily ceaseprovision of services. Businesses will have to store fiscal data electronically and send it to tax authorities over the internet. It is also expected that businesses will have to provide receipts to their customers, including in relation to online provision of services. Since the new rules are drafted in general terms, it is uncertain to what extent they apply to our operations. We may have to change our payment processing procedures and spend additional resources in order to ensure compliance with these new regulations.

Additionally, draft laws have been proposed to regulate the provision of online audiovisual services and taxi services and which could result in the regulation of internet services that offer audiovisual content or act as intermediaries between taxi service providers and passengers and which allows passengers to hail taxis, such as our services, Yandex.Video and Yandex.Taxi. In March 2017 the Russian Government approved for introduction into the Parliament another draft legislation which is aimed at regulation of services that aggregate information about goods and services offerings. Enactment of these draft laws could result in the imposition of additional obligations and liability on the providers of such intermediary services and could require us to modify certain of our business activities, administrativeservices, including Yandex.Video, Yandex.Taxi, Yandex.Market and other services which aggregate information about goods and services offerings, and spend additional resources in order to ensure compliance with new regulations. If we fail to comply with applicable legal requirements, we may face fines, penalties or criminal prosecution of our officers. In addition, we might be unablesanctions.

Applicable legislation imposes restrictions and requirements on us with respect to immediately comply with new regulations upon their implementation.

We may be subject to laws that impose restrictions on the collection and distributionprocessing of certain types of personal and other data via the internet,and data retention which may affectimpose additional obligations on us, limit our ability to flexibly manageflexibility, or harm our business or make it more costly to do so, or subject us to fines or other penalties.reputation with users.

        Current law imposes restrictions on the distribution of satellite images of certain areas in Russia and the other countries in which we operate and imposes requirements with respect to the information provided by the traffic monitoring service we offer. If we were found to be in violation of any such restrictions, we may be forced to suspend such services or may potentially be subject to fines or other penalties.

Collection and handling of personaluser data by any entity or person in Russia isand other countries may be subject to certain requirements and restrictions. If these requirements and restrictions including obtainingare amended, interpreted or applied in a manner not consistent with current practice, we could face fines or orders requiring that we change our operating practices, which in turn could have a material adverse effect on our business, financial condition and results of operations.

In Russia, in order to store an individual’s personal data, we must obtain his or her written consent from the relevant individual and usinguse encryption and other technical and encryption means for the protection of personal data. In addition, subject to several exemptions, a notification must be made to the appropriate Russian governmental body, Roscomnadzor, to processprotect his or her personal data. We do not collect or perform any operations on our users'users’ personal data, except when such collection or processing is in accordance with our terms of services and privacy policies which are available on our websites. Due

Subject to several exemptions, processors of personal data must notify the appropriate Russian authority. We do not believe that we are required to make this notification.  However, due to the absence of established court practice and official guidelines on the application of the exemptions however,to notification, we cannot assure you that the regulator may not take a view that we nevertheless have to file a notification or comply with other requirements.requirements applicable to processors of personal data. If we are ultimately required to file such a notification or otherwise are determined to be subject to the rules regarding the collection and handling of personal data, we may be required to use special technical facilities and equipment and to adopt extensive internal compliance rules for the protection of personal data, which may adversely affect our ability to flexibly manage our business or make it more costly to do so.

Furthermore, we use cookies and other widespread technologies that assist us in improving the user experience and personalization of our products and services that ultimately benefit both our users and advertisers through behavioral targeting, which makes our advertising more relevant. There is no clarity as to whether our practices are compliant with the requirements of applicable data protection legislation in Russia and abroad, and such laws could be interpreted and applied in a manner that is not consistent with our current data protection practices.

Additionally, in Russia, “organizers of information distribution” are required to notify the relevant Russian authority about the commencement of their operations, and must retain a broad range of data relating to and generated by their users for a period of time, which must be provided to the authorities at their request. Our principal subsidiary operating in Russia has notified the relevant Russian authority that it acts as an organizer of information distribution with respect to some of the services it provides. Organizers of information distribution that use encryption when delivering or processing electronic messages have to provide the security authorities with information necessary for decoding the delivered or processed messages. Compliance with these requirements may require significant expenditures by us, including additional data centers, servers and other infrastructure or software development. Data retention may also harm our reputation with users. If we fail to comply with the above requirements, the Russian authorities can block access to our services in Russia.

Under Russian law, companies are also required to store all personal data of Russian users in databases located inside Russia. Since this legislation is drafted broadly, it is uncertain whether or to what extent it applies to our operations. Compliance with the requirements provided in this legislation may be practically difficult, require significant efforts and resources, could lead to legal liability in other jurisdictions and limit functionality of our services. Compliance with these requirements may also limit our ability to compete with other companies located in other jurisdictions that do not require mandatory local storage of personal data relating to their users. However, any non‑compliance with this requirement could lead to legal liability and potentially to restriction of the availability of the service in Russia. For example, in 2016 a Russian court ordered the blocking of access to a popular social networking website for violation of data protection legislation.

Due to the nature of the services we offer and the fact that we have a presence in a number of countries, we may also be subjectedsubject to personal data protection laws of other jurisdictions, especially laws regulating to cross-borderthe cross‑border transfer of personal data.

Tabledata, which may require significant compliance efforts and could result in liability for violations in other jurisdictions. As our business grows we may also encounter increased pressure from foreign state authorities with respect to production of Contentsinformation related to users in circumvention of the international legal framework regulating the provision of such information. Any non‑compliance with such requests may lead to liability and other adverse consequences.

WeFurther, current law imposes restrictions on the distribution of satellite images of certain areas in Russia and the other countries in which we operate and imposes requirements with respect to the information provided by the traffic monitoring service we offer. If we were found to be in violation of any such restrictions, we may be forced to suspend such services or may potentially be subject to data retention regulations, requiring us to collect, store and produce to the state authorities certain types of data related to activity of our users, which may require us to acquire additional storage and make amendments to the services and products to implement the requirements.fines or other penalties.

        A bill has been recently introduced to the State Duma of Russia which will require, if adopted and signed into law, internet service providers and website owners to retain broad range of data relating to and generated by the users (including potentially their stored or even deleted data and contents of all the communications) of our services for a period of six months and provide such data to security and investigation authorities at their request. While the final requirements which will be introduced by the law and subordinate regulations are unclear, compliance with such requirements may require significant expenditures by us such as potentially large expenditures on additional data centers, servers and other infrastructure or software development.

We may be subject to existing or new advertising legislation that could restrict the types and relevance of the ads we serve, which would result in a loss of advertisers and therefore a reduction in our revenues.

Russian law prohibits the sale and advertising of certain products such as illegal drugs. In addition,and heavily regulates advertising forwith respect to certain regulated products and services may only be conducted by, or on behalf of, advertisers who possess the licenses, approvals and certificates required to market and sell such products and services. Ads for certain products and services, such as financial services, as well as ads aimed at minors and some others, must comply with specific rules and must in certain cases contain required disclaimers. Furthermore, a July 2012 amendment to Russian advertising legislation outlawed advertising

Further amendments in this regard are still widely discussed, whatto legislation regulating advertising may leadimpact our ability to certain changes in current approach.provide some of our services or limit the type of advertising we may offer. The application of these laws to parties, such as Yandex, that merely serve or distribute such ads and do not market or sell the product or service, however, can be unclear. Pursuant to our terms of service, we require that our advertisers have all required licenses or authorizations. If our advertisers do not comply with these requirements, and these laws were to be interpreted to apply to us, or if our ad-servingad‑serving system failed to include necessary disclaimers, we may be exposed to administrative fines or other sanctions, and may have to limit the types of advertisers we serve.

The regulatory framework in Russia governing the use of behavioral targeting in online advertising is unclear. If new legislation were to be adopted, or current legislation were to be interpreted, to restrict the use of behavioral targeting in online advertising, our ability to enhance the targeting of our advertising could be significantly limited, which could result in a loss of advertisers or a reduction in the relevance of the ads we serve, which would reduce the number of clicks on the ads and therefore our revenues.

Our need to comply with applicable Russian laws and regulations could hamper our ability to offer services that compete effectively with those of our foreign competitors and may adversely affect our business, financial condition and results of operations.

Many of our global competitors, such as Google, Microsoft and Yahoo!, have their principal operations outside of Russia, putting them generally outside of the jurisdiction of Russian courts and government agencies, even though some of them have offices in Russia. Our systems and operations are located principally in Russia. Russian laws and regulations that are applicable to us, but not to our foreign competitors, may impede our ability to develop and offer services that compete effectively on a global scale as well as in Russia with those offered by our foreign-basedforeign‑based competitors and generally available worldwide over the internet. For example, our foreign competitors may be able to offer certain content that is now, or may in the future be, restricted by Russian law. Any inability on our part

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to offer services that are competitive with those offered by our foreign competitors may adversely affect our business, financial condition and results of operations.

Russian authorities could determine that we hold a dominant position in one or more of our markets, and could impose limitations on our operational flexibility whichthat may adversely affect our business, financial condition and results of operations.

        The Russian anti-monopolyanti‑monopoly legislation uses a criterion ofimposes restrictions on companies that occupy a dominant market position and contains certain guidelines and restrictions for companies deemed to be dominant in thea given market. We believe that the anti-monopoly authorities have not to date addressedfocused on internet advertising in Russia to any significant extent; however, an antitrust authority official recently expressedextent, although we are aware of public statements by government officials suggesting that the intention of the regulators to perform an analysis ofauthorities may analyze the business of online social networks in 2013 and 2014, which potentially could include scrutiny ofnetworking. Were the overallRussian authorities to investigate the internet or online advertising market. If, and whenindustries,  it is possible that they do so, Russian authorities may conclude that, given our market share, we hold a dominant position in one or more of the markets in which we operate. Additionally, from time to time we receive information requests from Russian Federal Antimonopoly Service (FAS) related to certain of our services. If FAS deems that we hold a dominant position in one or more of the markets in which we operate whichthis could result in limitations on our future acquisitions and a requirement that we pre-clearpre‑approve with the authorities any changes to our standard agreements with advertisers and Yandex ad network partners, as well as any specially negotiated agreements with business partners. In addition, if we were to decline to conclude a contract with a third party or terminate an existing agreement without sufficient substantiation this could, in certain circumstances, be regarded as abuse of a dominant market position. As a general rule, actions or omissions of a dominant company are prohibited if they lead or may lead to prevention, restriction or elimination of competition or infringement of third parties' interests, resulting in the imposition of disadvantageous contractual terms to the counterparty or terms not related to the subject of the contract; fixing different prices on the same commodity, where it is not economically or technologically justifiable; creating discriminatory conditions; or other consequences.

Any abuse of a dominant market position could lead to administrative penalties and the imposition of fines of up to 15% of our prior year annual revenues in the relevant market. These limitations may reduce our operational and commercial flexibility and responsiveness, which may adversely affect our business, financial condition and results of operations.

BusinessesSee  “—The competition to capture market share on mobile devices is intense, and if we are not successful in Russia, especially high-profile companies, may be subject to aggressive, arbitrary, contradictory or ambiguous laws or regulations, or to politically motivated actions, which could materially adversely affectachieving substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations.operations could be adversely affected.”

Businesses in Russia have on occasion been subject to actions by public authorities that some have characterized as unpredictable or politically motivated.

Many commercial laws and regulations in Russia are relatively new and have been subject to limited interpretation. As a result, their application can be unpredictable. In addition, government authorities have a tendency to follow a very formal approach in certain cases, and are entrusted with a high degree of discretion in Russia and have at times exercised their discretion in ways that may be perceived as selective or arbitrary,unpredictable, and sometimes in a manner that is seen as being influenced by political or commercial considerations. Such actions have included the termination or invalidation of contracts, withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions, administrative investigations and civil actions.actions as well as actions for technical violations of law or violations of laws that have been applied retroactively, such as violations of tax laws, or interpretations of widely used practices in specific cases as impermissible. Federal and local government entities have also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions, apparently for political purposes. We cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance with applicable laws, decrees and regulations.

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        The Russian government has taken various actions in recent years against business people and companies operating in Russia that have been perceived as having been politically motivated, including actions for technical violations of law or violations of laws that have been applied retroactively, such as violations of tax laws, or interpretations of widely used practices in specific cases as impermissible. In 2008, for example, government officials publicly criticized transfer pricing arrangements used by a Russian-based company that is publicly traded in the United States, claiming that such arrangements constituted tax evasion. These claims resulted in a steep decline in that company's stock price. In 2013, stock prices of a Russian bank which is focused on distance banking services and company offering instant payment services dropped sharply after the news about possible introduction of new laws which could impact their operations. Government officials may apply contradictory or ambiguous laws or regulations in ways that have a material adverse effect on our business, financial condition and results of operations. Such actions have on occasion resulted in significant fluctuations in the market prices of the securities of businesses operating in Russia, a weakening of investor confidence in Russia and doubts about the progress of market and political reforms in Russia.

        High-profileHigh‑profile businesses in Russia, such as ours, can be particularly vulnerable to politically motivated actions. Some Russian television broadcasters, for example, have experienced what some would characterize as politically motivated actions, including efforts to facilitate change of control. Although we believe that our commitment to content neutrality principles lessens the risk of politically motivated actions against us, we cannot guarantee that we will not be affected by politically motivated actions that could materially adversely affect our operations. Moreover, although our Yandex.News service aggregates content by automatic algorithm, without regard to viewpoint, other parties may perceive our Yandex.News service as reflecting a political viewpoint or agenda, which could subject us to politically motivated actions.

RestrictionsThe Russian parliament may adopt and government officials may apply unpredictable, contradictory or ambiguous laws or regulations in ways that have a material adverse effect on our business, financial condition and results of operations.

Existing restrictions on foreign ownership imposed by Russian legislation may prevent a takeover of our company by a non-Russiannon‑Russian party. If the Russian government were to apply existing limitations on foreign ownership to our business, or specifically impose limitations on foreign ownership of internet businesses in Russia, it could materially adversely affect our group and the value of our Class A shares.

        The Russian Federal Law "On the Procedure for Foreign Investments in Companies which are Strategically Important for the State Defense and National Security" (the "Strategic Companies Law")law restricts foreign ownership of companies involved in certain strategically important activities in Russia. The relevant activities are listed in the Strategic Companies Law and include activities connected with the use of encryption technologies that are subject to licensing. TheCurrently, the internet and online advertising are not currently industries specifically covered by this legislation, but in the Strategic Companies Law, but a draft amendment currentlypast there have been amendments under consideration by the Russian State Duma, which, if adopted, would include certain large internet companies that have large audiences within the scope of this law.

        The Strategic Companies Law requires the prior approval of a Russian Governmental Commission chaired by the Prime Minister of Russia or post-transaction notification to the Russian Federal Antimonopoly Service (as the case may be) when obtaining control over a strategically important company. For example, under the provisions of the Strategic Companies Law, the direct or indirect acquisition of more than 25% of the voting power of a strategically important company or other ability to block decisions of the management bodies of a strategically important company by a foreign state, international organization or entity controlled by a foreign government, or international organization, or the direct or indirect acquisition of more than 50% of the voting power of such a company by any foreign investor or any of its controlled companies, requires the prior approval of the Russian Governmental Commission chaired by the Prime Minister. Failure to obtain the required governmental approval prior to an acquisition would render the acquisition null and void. If it is impossible to apply the consequences of invalidity to a void transaction, the state court may upon the lawsuit of the Russian Federal Antimonopoly Service adopt a decision:

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depriving the foreign investor of its right to vote at the shareholders' (participant's) meeting of a strategically important company; or

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invalidating the decisions of the management bodies of a strategically important company adopted after the establishment of control in breach of the Strategic Companies Law.

        Post-transaction notification to the Russian Federal Antimonopoly Service is required in the case of acquisition of 5% or more of the shares of a strategically important company. In addition, foreign investors or their group companies that are controlled by a foreign state or international organization are prohibited from owning more than 50% of the voting power of a strategically important company.

We believe that our Yandex.Money joint venture is subject to the above restrictions on foreign ownership because the Yandex.Money business currently holds an encryption license covered by the Strategic Companies Law due to the fact that PS Yandex.Money LLC currently holds encryption licenses which fall within the scope of the Strategic Companies Law.law. Since the conclusioncompletion of our joint venture in respect of  the Yandex.Money business in July 2013 following the sale by Yandex N.V. to Sberbank of 75% (less one ruble) of the total participation interest in PS Yandex.Money, LLC , we believe that the applicable restrictions in respect of private non-Russiannon‑Russian persons no longer apply to Yandex, N.V., but that the requirement to obtain prior approval from the Russian Government Commission chaired by the Russian Prime Minister continuecontinues to be applicable to non-Russiannon‑Russian state or international organizations or entities controlled by a non-Russian governmentnon‑Russian state or international organization that would seek to acquire shares of Yandex N.V.  or enter into an agreement that would establish direct or indirect control over Yandex N.V. and, therefore, trigger application of the Strategic Companies Law discussed above.law restricting foreign ownership. There is also a risk that some of the rights granted to Yandex N.V. under the joint venture agreement with Sberbank could be interpreted by Russian authorities as establishing control by Yandex N.V. over PSthe Yandex.Money LLC,business, which would require the Russian Governmental Commission'sGovernment’s preliminary consent for a broader number of transactions, including by private non-Russiannon‑Russian persons.

        These restrictions on ownership of our shares would be in addition to the restrictions on ownership of our shares provided for in our articles of association. See "—Risks Related to Ownership of our Class A Shares—Our Board of Directors and our priority shareholder have the right to approve accumulations of stakes in our company or the sale of our principal Russian operating subsidiary, which may prevent or delay change-of-control transactions," "—Risks Related to ownership of our Class A Shares—Anti-takeover provisions in our articles of association and the shareholders agreement among our principal shareholders may prevent or delay change-of-control transactions."

Moreover, considering thatbecause Yandex N.V. holds 25% (plus one ruble) in PS Yandex.Money, LLC, there is a risk that a change of control in respect of Yandex N.V. would still require preliminary consent of the Central Bank of Russia, as Yandex N.V. could be considered to indirectly hold more than 10% of the voting power of a non-bankingnon‑banking credit organization.

In 2016, legislation became effective in Russia that reduced the permitted level of foreign ownership in companies that hold Russian mass media registrations. The law limits the ownership or control, direct or indirect, of Russian mass media entities by non‑Russian entities and individuals to no more than 20%. Yandex’s principal businesses in Russia are not currently required to register as mass media, and therefore this new law is not applicable to our business. Were a new law with a similar regulation to be adopted that imposed a limitation on foreign ownership of internet businesses such as ours, or were the mass media law to be amended to require that our businesses register as mass media or implement a separate registration for online services, this could require a significant change in our operating or ownership structure, which could materially adversely affect our operations and/or the value of our Class A shares.

In order to comply with the new limitations on foreign ownership of mass media in Russia, our Yandex.Traffic service uses the services of an information agency that is not owned by Yandex when providing information services to its customers. However, there is no guarantee that the operation of our Yandex.Traffic service will be deemed compliant with the limitations on foreign ownership of mass media or that foreign ownership or sponsorship restrictions applicable to mass media will not adversely affect our Yandex.Traffic service.

In January, 2017 a new law came into force that regulates the provision of online news aggregation services in Russia. The law limited the ownership of news aggregation services only to Russian entities and citizens. Although we believe that we currently comply with this requirement, we cannot assure that the regulator may not take a different view.

In November, 2016 a draft law was introduced that aims to regulate the provision of online audiovisual services. The draft law proposes to impose new obligations on audiovisual services providers and limit to no more than 20% the ownership or control, direct or indirect, by non-Russian entities and individuals of larger online audiovisual services. The proposed legislation is drafted in general terms and could potentially apply to any service offering audiovisual content. If the current proposal is implemented this could significantly affect our Yandex.Video service and other services that could be used to offer audiovisual content, and we may have to spend additional resources in order to ensure compliance with new regulations, or change the operating principle of, or cease to provide, our Yandex.Video service.

Businesses in Russia can be subject to aggressive actionsefforts by financial groups seeking to obtain control through the exercise of economic or political influence or government connections.

        Well-funded, well-connectedWell‑funded, well‑connected financial groups and so-called "oligarchs"so‑called “oligarchs” have, from time to time, sought to obtain operational control and/or controlling or minority interests in attractive businesses in Russia by means that have been perceived as relying on economic or political influence or government connections. We may be subject to such efforts in the future and, depending on the political influence of the parties involved, our ability to thwart such efforts may be limited.

The Russian banking and financial system remainssystems remain less developed than those in some more developed markets, and a banking crisis could place liquidity constraints on our business and materially adversely affect our business, financial condition and results of operations.

        Russia'sRussia’s banking and other financial systems are less well well‑developed and regulated than those of some more developed markets, and Russian legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Russian banks generally do not meet

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international banking standards, and the transparency of the Russian banking sector lags behind international norms. In addition, the United States and European Union have imposed “sectoral” and related sanctions on named Russian banks in connection with developments in Ukraine. See “—Adoption and maintenance of embargo, economic or other sanctions, in particular with respect to the conflict in Ukraine, as well as similar measures against the countries in which we operate, may have a material adverse effect on our business, financial condition and results of operations.”

As a result, the banking sector remains subject to periodic instability. In 2013 the Central Bank of Russia conducted review of activities and operations of Russian banks, which in certain cases led to withdrawal of banking licenses. Another banking crisis, or the bankruptcy or insolvency of banks through which we receive or with which we hold funds, may result in the loss of our deposits or adversely affect our ability to complete banking transactions in Russia, which could have a material adverse effect on our business, financial condition and results of operations.

Some of our counterparties provide limited transparency in their operations, which could subject us to greater scrutiny and potential claims from government authorities.

We do business with a number of companies, especially small companies that do not always operate in a fully transparent manner and that may engage in aggressiveunpredictable or otherwise questionable practices with respect to tax obligations or compliance with other legal requirements. We have on occasion been approached by government authorities regarding potential tax claims or other compliance matters in connection with such transactions. For example, in 2016 we received a claim from the Russian tax authority in respect of one of our distribution agreements with a Russian software developer. We have both appealed the tax authority’s claim and made an accrual for it in our 2016 financial statements as we believe that due to the current court practice it is more likely than not that we will lose our appeal.

As we are a larger and more transparent company with greater resources than such counterparties, governmental authorities may seek to collect taxes and/or penalties from us in relation to such transactions on the basis that we had knowledge of or aided such practices even when we did not.

Changes in the Russian tax system orsystems of Russia and other countries in which we operate, as well as unpredictable or unforeseen application of existing rules, may materially adversely affect our business, financial condition and results of operations.

Russian tax, currency, and customs laws and regulations are subject to varying interpretations and changes, which may be frequently revised and reviewed by the authorities. As a result, our interpretation of such tax legislation may be challenged by the relevant authorities. For example, recent legislative developments in transfer pricing rules and anti-offshore initiatives that were announced in December 2013Russian tax legislation largely follows the OECD approach but may be implemented in a way which is not in line with the framework of the international legislation developments in this areapractice or our interpretation. Moreover, under the current conditions of weak economic growth and reduced tax revenue, the authorities are taking a more assertive position in their interpretation of the tax legislation and, as a result, it is possible that transactions and activities that have not been challenged in the past may now be put under questionquestioned by the authorities. High-profileHigh‑profile companies such as ours can be particularly vulnerable to such assertive positionpositions of the authorities.

Although we believe that our interpretation of relevant legislation is appropriate and is in accordance with the existing court practice, if the authorities were successful in enforcing differing interpretations, our tax liability may becomebe greater than the estimated amount that we have expensed to date and paid or accrued on our balance sheets.sheet.

Generally, Russian taxpayers are subject to inspection of their activities for a period of three calendar years immediately preceding the year in which an audit is carried out. Taxout, with tax audits are routinely undertaken at least every two years. A tax audit of our principal Russian subsidiary covering 2010, 2011 and 2012 commenced in June 2013 and is expected to be2014 was completed in 2014. Any additional2016 and the resulting tax liability, as well as any unforeseen changesclaims have been fully accrued in Russian tax laws, could have a material adverse effect on our business,2016 financial condition and results of operation.results.

        The Russian tax system imposes additional burdens and costs on our operations in Russia, and complicates our tax planning and related business decisions. These factors raise the risk of a sudden imposition of arbitrary or onerous taxes on our operations in Russia or fines, penalties and enforcement measures. This may materially adversely affect our business, financial condition and results of operations.

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Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under the Netherlands-RussiaNetherlands‑Russia tax treaty.

In accordance with2016, our principal Russian legislation,operating subsidiary distributed limited dividends paid by a Russian entity to a nonresident shareholder that is a legal entity are subject to Russianour parent company (Yandex N.V.) and applied withholding tax at a 5% rate in reliance on the rateprovisions of 15%. The Netherlands-Russiathe Netherlands‑Russia tax treaty generally reduces that rate to 5% for corporate shareholders that are tax resident in the Netherlands, provided that they do not have a permanent establishment in Russia and that certain other conditions, which we believe we satisfy, are met.treaty.

Yandex N.V. is incorporated in the Netherlands and our principal operating subsidiaries are incorporated in Russia. Our management seeks to ensure that we conduct our affairs in such a manner that our parent company is regarded as the beneficial owner of all its incomes and not regarded as tax resident in any jurisdiction other than the Netherlands and, in particular, is not deemed to be a tax resident of, or to have a permanent establishment in, Russia. Thus, dividends paid from our Russian operating subsidiaries to our parent company should generally be subject to Russian withholding tax at a 5% rate. If our parent company were not treated as a Dutch resident for tax purposes or if it were deemed to have a permanent establishment in Russia, or if the Russian tax authorities were to determine that other conditions for the application of the 5% rate are not met because, for example, if Yandex N.V. is not deemed to be beneficial owner of the dividends received, dividends paid from our Russian operating subsidiaries to our parent company would be subject to Russian withholding tax at the rate of 15%. Prior to our corporate reorganization in 2007, our parent company was incorporated in Cyprus and dividends were paid to that company in reliance on similar provisions under the Cyprus-Russia tax treaty.

        Our Russian operating subsidiaries have paid dividends to our parent company in reliance on the provisions of the Netherlands-Russia tax treaty. Russian tax rules however, are characterized by significant ambiguities and limited interpretive guidance and are subject to change, and we can provide no assurance that dividend withholding tax relief may not be challenged by the Russian

tax authorities based on the grounds mentioned above. Furthermore, Russian tax rules regarding residency are currently under review and beneficial ownership which were recently introduced may change or their interpretation may evolve, thus triggering changes in taxation of dividends from our Russian subsidiaries to our parent company in the future.

Based on the current state of the law and available interpretations, we believe that Yandex and our material foreign subsidiaries should not be treated as controlled foreign corporations for Russian tax purposes. However, there are risks that any of these rules may be interpreted or applied in a manner that may have an adverse effect on our results of operations.

We may be required to record a significant deferred tax liability if we are unable to reinvest our earnings in Russia.

Our principal Russian operating subsidiary has significant accumulated earnings that have not been distributed to our Dutch parent company. Our current policy is to retain substantially all our earnings at the level of our principal subsidiary for investment in Russia, and weRussia.

We did not pay any inter-company dividendsprovide for dividend withholding taxes on the unremitted earnings of our non‑Dutch subsidiaries in 2011, 20122013 or 2013.

        We currently deem any earningsearlier years because we considered them to be permanently reinvested by our principal Russian operating subsidiary outside of the Netherlands and, accordingly,Netherlands. As of December 31, 2016, we have not recorded a deferred tax liability on these unremitted earnings.had an accrual of RUB 990 million ($16.3 million) for dividend withholding tax. If circumstances change and we are unable to reinvest in that subsidiary'ssubsidiary’s current operations or acquire suitable businesses in Russia, U.S. GAAP would require us to record a deferred tax liability representing the dividend withholding taxes that we would be required to pay if this subsidiary were to pay these unremitted accumulated earnings to our Dutch parent company as a dividend, even if such dividends were not actually declared and paid. As of December 31, 2013,2016, the cumulative amount of unremitted earnings in respect of which dividend withholding taxes have not been provided is RUR 35,708 million.RUB 52,240 million ($861.2 million). The applicable withholding tax rate is 5% and the amount of the unrecognized deferred tax liability related to these unremitted earnings was RUR 1,785RUB 2,612 million ($43.1 million) as of December 31, 2013.2016. We expect the amount of unremitted earnings to grow as our principal Russian operating subsidiary continues to generate net income. If we were required to record a deferred tax liability on an amount subsequently made available for distribution it may have a material adverse effect on our results of operations.

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Ambiguities in Russian law regarding payments to individuals who are Yandex ad network partners may create employment-related tax obligations or require us to limit network partnership and may adversely affect our business, financial condition and results of operations.

        Ambiguities in Russian law make it difficult to structure payments to third-party individuals without creating a deemed employer-employee relationship. Many of our Yandex ad network partners are individuals who own and operate their own websites. We have contractual relationships with third parties, including advertising agencies, who act as aggregators and that make payments to individual Yandex ad network partners for the fees to which they are entitled in connection with the ads we serve on their websites. In the event that an aggregator fails to make any required tax withholding or otherwise comply with applicable laws in respect of such payments, the authorities might seek to hold us liable. In addition, because of ambiguities in the law, a Russian court or agency might elect to disregard these aggregators and construe our indirect payments to any such individual as creating an employer-employee relationship between us and that individual, with associated tax obligations. If Russian law were interpreted in such a way, and if we were not able to develop a method of paying individual partners without triggering this law, we would most likely limit partnership in the Yandex ad network to legal entities and businesses to reduce our exposure to potential liability. This would result in fewer partners in the Yandex ad network, and may adversely affect our business, financial condition and results of operations.

We face similar risks in other countries.

        In addition to Russia, we currently have operations in other countries in the CIS, including Ukraine, Belarus and Kazakhstan. We may acquire or establish additional operations in additional countries of the CIS. We also have limited operations in countries outside CIS, including the US, the Netherlands, Switzerland, Turkey, Hong Kong and Finland. In certain respects, the risks inherent in transacting business in Russia or on an international scale, as set out above, also apply to our business or operations in these jurisdictions.

Risks Related to Ownership of our Class A Shares

The price of our Class A shares has been and may continue to be volatile. Market fluctuations specific to high-growthRussia or developing markets or to high‑growth technology companies generally may affect the performance of our Class A shares and could expose us to potential securities litigation, which could result in substantial costs and a diversion of our management'smanagement’s attention and resources.

        TheMacroeconomic and geopolitical events in Russia in recent periods have adversely affected the value of traded securities of companies with significant operations in Russia, including our Class A shares. In addition, the market for technology and other growth companies has generally experienced severe price and volume fluctuations that have often been disproportionate to the operating performance of those companies. These broad macroeconomic, geopolitical, market and industry factors may impact the market price of our Class A shares regardless of our actual operating performance.

The trading price of our Class A shares has been and may continue to be volatile and subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:

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quarterly variations in our results of operations or those of our competitors;



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fluctuations in our share of the internet search market;



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announcements of technological innovations or new services and media properties by us or our competitors;



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the emergence of new advertising channels in which we are unable to compete effectively;



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changes in governmental regulations;