- Yandex is expected to deliver revenue growth of about 37%.
- The first half of 2014 will be keenly watched amidst the political crisis.
- Yandex is financially robust and is attractive for the long term at current valuation.
Russian search major Yandex (NASDAQ:YNDX) is slated to report earnings for Q1 2014 on 24 April. The first half of 2014 will be somewhat of an acid test for the company which has become a victim of political tensions surrounding Russia and Ukraine. Though Yandex is financially robust, its stock has lost over a third of its value since its 52 weak high in Jan 2014. We think it’s an attractive investment for long term investors at its current valuation.
Analyst Estimates and Company Guidance
In 2014, Yandex expects its full year revenue to range from $1.51 – 1.57 billion, growing at 25 - 30%.
In Q1, analysts expect Yandex to deliver a revenue of about $305 million (RUR 10.96 billion) and an EPS of RUR 7.98 a share. Estimates peg revenue growth over the same period a year ago (Y/Y) at about 37%.
Yandex Historical Performance
Yandex has maintained an enviable track record in terms of revenue growth and profitability. Over a 3 year period, Yandex has recorded an average revenue growth rate of 48% with operating profit margins of 33% and net profit margins of 30%.
In FY 2013, Yandex generated 98% of its revenue from advertising. Its payments business Yandex.Money generated about 1% of its revenue. However, following the sale of majority stake in the business, revenue from Yandex.Money now forms a part of its ‘other income’.
In Q4 2013, Yandex continued to deliver impressive results with revenue growing at 37% to clock its best quarterly addition to its top-line. The company recorded healthy operating and net profit margins of 32.4% and 27.7% respectively.
Paid clicks grew remained solid at 52% vs 50% in Q3 2013. Driven by Yandex’s partnership with Mail.ru, revenue from advertising on partner sites (ad-network) nearly doubled sequentially, growing twice as fast as ad-revenue from its own sites.
Cost per click (CPC) showed a decline of 7% Y/Y in line with what we have observed in the case of competitors like Google. Traffic Acquisition Cost or TAC also doubled in Q4, thus dragging profit margins slightly below average levels and this trend is likely to continue albeit in varying degrees.
Potential Drivers of Future Growth
Investors will be eager to know the outcome of Yandex’s recent tie-up with Google to allow their advertisers/customers to bid for ad-spaces on each other’s ad-networks. The partnership could potentially boost Yandex’s display ad-revenue and serve as a cushion for any impact from a Russian economic downturn.
The transitioning of Yandex.Market from a mere price comparison site into an e-commerce portal holds great potential given Yandex’s reach and the fact that Russia is now home to Europe’s largest internet audience.
Developments pertaining to Kinopoisk, the Russian IMDB equivalent will also be watched after it was recently acquired by Yandex to bolster its online video advertising revenue.
When it comes to revenue growth and profitability, Baidu is the best of the three competitors, Baidu, Yandex and Google. However, Yandex has consistently performed better than Google on both counts. Post the panic selling, the stock is priced attractively and is currently the cheapest among its peers in terms of its Price/Earnings multiple.
|LTM Price/Sales ratio (P/S)||6.0||10.35||8.6|
|LTM Price/Earnings ratio (P/E)||28.1||31.8||25.2|
Risks pertaining to Russia’s economic slowdown still remain. However, Yandex’s earnings release this quarter will tell us how the company is dealing with these uncertainties. That said, given its dominant position in Russia and Belarus and the progress it has shown in surrounding countries, we are bullish about its prospects in the long term. Valuing Yandex at the average P/E of its peers indicates an upside of over 18% and a target price of $35 a share.
At its current price of $29.95 a share, Yandex stock scores 3.5/5 on our parameters. It is on our positive watch list and we think that it will turn out to be a very good investment once the political crisis is over.
To see Yandex Inc.'s latest stock price movement, click here (NASDAQ:YNDX)