How We Went Wrong With Yandex

  • Yandex stock price fell by 58% in 2014.
  • Yandex fundamentals were strong post Q3 in spite of the Crimea Crisis.
  • Negative macro-economic environment currently outweighs cheap valuations and strong fundamentals.

In spite of its strong fundamentals, Russian search giant Yandex (NASDAQ:YNDX) had a torrid time in 2014 with its stock price dropping by 58%. Given its strong revenue growth, profitability and cheap valuations through most of the year, we were bullish about Yandex all along. So much so, that when valuations slid way lower than its peers Baidu and Google, we added the stock to our list of stocks to buy. However, Yandex valuations have continued to slide, owing to a combination of factors, and as it turns out, we were wrong about Yandex, the stock. As unpredictable as the influencing external factors may be, here’s why this great company has turned out to be a nightmare of a stock.

Yandex Stock Price Movement In 2014

Yandex started 2014 with its stock price in the $40 plus range, but ended the year at $18 a share. As geo-political tensions surrounding the Crimea crisis engulfed Russia and Ukraine, Yandex, like many other Russian stocks, became an innocent victim, falling by close to 44% in about 4 months to $24 a share.

YNDX stock chart

Yandex stock chart by

Given its attractive valuations (Yandex PE ratio: 25.2) prior to its Q1 2014 earnings, strong Yandex earnings in Q1 2014 triggered a rally in Yandex’s stock price. Yandex showed resilience in the face of the Crimea crisis, delivering strong revenue growth and profitability amid sanctions from the US and the EU. A brief two month window saw the stock make its way back up, to a little past $35 a share before tensions escalated again.

Post July 2014, problems compounded for Yandex, as the escalation of tensions in the Crimea region coincided with the beginning of what has now turned into a meltdown in global crude oil prices. The Russian economy depends heavily on crude oil exports and thereby, global oil prices. With its operations based largely in Russia, Yandex valuations took an inevitable beating, with the stock price crashing all the way down to nearly half its value in June, to $17.96 at the end of 2014.

Yandex Revenue Growth & Profitability

Yandex earnings for Q2 2014 saw the search giant deliver yet another strong quarter, beating analyst estimates of revenue and earnings per share (EPS), but the relief rally was brief and Yandex continued its downward journey.

As we highlighted in our coverage of Yandex earnings for Q3 2014, Yandex fundamentals continue to be surprisingly good, at last count. In Q3, Yandex beat revenue estimates and went way past adjusted EPS estimates. Our Yandex stock analysis video offers a quick roundup of Yandex fundamentals post Q3 2014.

Yandex revenue grew by 28% YoY, driven by strong growth in its largest revenue segment, Text Based Advertising. The company delivered a strong performance across metrics, with a 60% market share in the Russian online search market and sustained improvements in its CPC (cost per click), paid clicks and search queries.

In Q3, Yandex delivered improved operating and net profit margins of 34.5% and 33.7% respectively, aided in part by forex gains as the Russian Ruble (RUR) depreciated by over 17% vs the USD during the quarter.

Much against expectations, during the Yandex earnings call, the company narrowed its revenue guidance to the higher end of its earlier range at 27%-30% YoY growth. However, the post earnings rally of 3.7% lasted only about a week, as external factors continued to weigh on the stock, dragging Yandex valuations to multi-year lows.

Yandex Valuations

At a stock price of $16.21 Yandex valuations are as follows:

  • Yandex PE ratio - 14.74
  • Yandex Price To Sales ratio – 3.77

Yandex valuations as on 27 Jan 2015, are at their lowest levels since Yandex went public in May 2011. Visibly Yandex valuations are way lower than say, Baidu valuations or Google valuations. However, the sequence of events in 2014 has mounted multiple challenges for Yandex in 2015. Only the coming quarters will reveal how Yandex is dealing with the macro-economic challenges it is faced with. Until then, Yandex valuations, though cheap, are unlikely to lure investors.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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