- Yandex missed estimates but delivered a resilient performance.
- Yandex showed healthy improvements across metrics.
- Yandex is taking on Google for “anti-competitive practices” in Russia.
- Yandex valuations are attractive, but external risks persist.
Yandex earnings for Q4 2014 were announced on 18 Feb 2015, during pre-market hours. The Russian search giant delivered numbers that were better than was initially feared, given the macro-economic headwinds it is faced with. While revenue was more or less in line with its earlier guidance and analyst estimates, adjusted EPS missed estimates marginally.
The company’s net profit margins expanded significantly on the back of foreign exchange gains. Following Yandex Q4 results, the stock was up in pre-market trade, and moved on to touch an intra-day high of $18.06 a share, before ending the day up 1.2%, at $16.85 a share.
Yandex Q4 Earnings Highlights
- Yandex Revenue: RUR 14.7 billion ($260.7 million) vs estimates of RUR 14.74 billion
- Yandex EPS Adjusted: RUR 12.38 ($.0.22) vs estimates of RUR 12.57
- Yandex EPS Diluted: RUR 23.43 ($0.42)
Yandex Revenue Growth
Yandex Q4 results saw the company’s revenue miss its own guidance by a feather. Yandex revenue guidance (implied by FY 2014 revenue guidance) for the quarter and analyst estimates both stood at RUR 14.74 billion.
Yandex revenue grew by 21.4% YoY in Ruble terms, while falling by 29% in Dollar (USD) terms, owing to the sharp depreciation of the Ruble vs the USD. Yandex saw growth in the number of advertisers, both sequentially (5%) and YoY (14%), a healthy sign for Yandex, which earns over 98% of its revenue from advertising.
Text-based advertising contributed a little over 90% of Yandex revenue, growing by 22% YoY, driven by 24% revenue growth on Yandex owned sites and a 16% growth on partner sites.
Tepid growth continued in Display Advertising revenue, dragged by a YoY decline (-2%) on Yandex sites, while network sites registered a 34% growth. Overall, Display advertising revenue grew by 3% YoY and accounted for 8% of revenue in Q4.
Total ad-revenue grew by 20% YoY and accounted for a little over 98% of Yandex revenue in Q4. Other revenue sources contributed less than 2% and grew by 156% YoY.
Yandex adjusted EPS fell short of estimates by a little over 1.5%. However, Yandex earned close to $4.5 billion from its operations and registered a marginal improvement in operating margins compared to its average levels over the last year.
Viewed in the backdrop of a big dip in growth rates, this aspect of Yandex’s operating performance was encouraging. Yandex’s management also signaled that it will pursue “cost efficiencies” in the coming quarters, as it deals with a tough macro-economic environment.
- Yandex Operating Profit Margin: 30.5%
- Yandex Net Profit Margin: 51.6%
- Yandex Forex Gains: RUR 4.7 billion ($83 million) or 32% of revenue
- Yandex Adjusted Net Profit Margin: 27%
Net profits swelled, driven by forex gains as we had predicted in our Q4 earnings preview. Gains from revaluation of US Dollar denominated assets drove non-operating income, pushing net margins significantly higher. That said, even Yandex’s adjusted net margin stood at a healthy 27%.
A drop in the cost of revenue from 29% to 27% of revenue, partly offset the jump in R&D or product development expenses from 14% to 18% of revenue, compared to its year ago levels.
Yandex Operating Metrics
- Yandex Market Share in Russia: 59.7%
- Yandex TAC (Traffic Acquisition Costs): 21.1% of total revenue
- Yandex Search Queries: grew 9% YoY
- Yandex Paid Clicks: grew 18% YoY
- Yandex CPC (Cost-Per-Click): grew 3% YoY
Yandex Market share continued to decline albeit marginally, from its perch at 61.9% a year ago; more about this in our next section.
TAC fell from 23.4% a year ago, largely because revenue on Yandex sites grew at a faster clip than on partner sites.
Coupled with the growth in total advertisers, the growth in CPCs is yet another positive for Yandex.
Yandex vs Google
There’s a growing rivalry between global search giant Google and Russian search leader Yandex. A few months ago, Yandex replaced Google as the default search engine on Mozilla’s web browser in Russia. Of course, that’s not the first time the two have exchanged that seat.
This time around, Yandex has filed a complaint with the Russian Federal Antimonopoly Service “to investigate Google's anti-competitive practices in Russia”. According to Yandex, Google leverages its Android OS, which has over 80% of the market share in Russia, to ensure that OEMs pre-install the entire suite of Google services and set Google as the default search engine, among other things.
“In addition to that OEMs and MNOs are increasingly prohibited from installing any service from Google's competitors on their devices.
For example, in the last three months three Smartphone vendors, Prestigio, Fly and Explay, who have been our long-term partners, have notified us that they are no longer able to pre-install Yandex services on their Android devices. We believe that Google is using its dominant market position in order to promote its core services including search.”
Yandex Revenue Guidance For Q1 2015
In Q1 2015, Yandex expects to see revenue grow by 15% YoY, to RUR 12.5 billion. Q1 is typically a weak quarter for Yandex every year. Yandex Q1 guidance translates to a 14.6% sequential drop in revenue, which isn’t terrible given that the revenue has dropped in Q1 by 9.5% on average, for the last 3 years.
Yandex Valuations And Closing Thoughts
The sharp decline in growth rates is a reflection of the tough macro-economic outlook that Yandex is faced with. The company’s management has also said so, during the con-call, and the fact that it has chosen not to issue a full year revenue guidance is a re-iteration of that fact.
That said, buoyant profit margins (excluding forex gains) indicate that Yandex is handling the situation well and prove why Yandex is such a robust company fundamentally. What’s more, Yandex also has strong cash reserves (and equivalents) of RUR 49.2 billion ($874 million) that will help it wade through the tough times.
Yandex valuations continue to remain attractive when compared to peers like Google and Baidu. However, given the current macro-economic outlook for the Russian economy and the uncertainties that are evident for Yandex, the stock might be a risky bet right now.
Yandex Earnings Q4 2014 Preview
(Published on 10 Feb 2015)
- Yandex earnings for Q4 are scheduled to be announced on 18 Feb.
- Yandex could beat EPS estimates driven by USD strengthening.
- Revenue will be the key number to watch out for in Q4.
- External risks could outweigh attractive Yandex valuations.
Yandex earnings for Q4 2014 are due to be announced on 18 Feb 2015. Having lost more than half of its market cap over the last twelve months, the earnings release will be watched very closely. Yandex could deliver a surprise on the EPS front. However, revenue will be the number to watch out for, as Yandex contends with an under pressure Russian economy, with the fall in crude oil prices. Yandex valuations are cheap when compared to peers like Google and Baidu. However, as things stand, the risks to the Russian economy could outweigh attractive Yandex valuations.
Yandex Earnings Schedule Q4 2014
- Yandex Earnings Date - 18 Feb 2015
- Yandex Earnings Call - 8 AM EST
Yandex Earnings Analyst Estimates Q4 2014
Analysts expect Yandex to deliver strong EPS growth in Q4.
|Yandex Revenue||14.74 billion||22.0%||262 million|
|Yandex Earnings Per Share (adjusted EPS)||12.85 RUR||27.5%||$ 0.23|
Exchange rate as on 31 Dec 2014: 1 USD = 56.2584 RUR.
Based on its track record, the Ruble depreciation has helped Yandex in the form of revaluation gains from Dollar denominated assets. In Q3, when the RUR depreciated by a little over 17%, Yandex reported a 15% earnings beat.
Over Q4 2014, the RUR has depreciated by over 42%. This will impact Yandex numbers in Dollar terms, but could drive earnings growth for the quarter in Ruble terms.
Yandex Revenue Guidance
Yandex expects to see a 27% to 30% growth in FY 2014 revenue over FY 2013, implying a revenue of RUR 49.7 billion to 50.8 billion for 2014. The higher end of the guidance translates to a revenue of RUR 14.74 billion for Q4, with a YoY growth of 22%. Analyst estimates are pegged at the higher end of Yandex guidance for Q4. Projections of Yandex revenue in Q4 factor in a much lower growth rate as compared to the company’s track record.
Yandex Q3 2014 Earnings Recap
Yandex earnings beat analyst estimates in Q3 as the Russian search giant delivered a strong performance in spite of the geo-political concerns surrounding the Russian economy. Yandex valuations had already taken a significant hit, as the Ukraine crisis was widely expected to impact the Russian economy. However, Yandex emerged out of Q3 with a surprisingly good performance.
Yandex revenue grew by 28% in Q3 to touch RUR 13.06 billion or USD 331.5 million, beating analyst estimates by close to 3%. Yandex earnings beat analyst estimates by a solid 15%, as the company delivered operating and net profit margins of 34.5% and 33.7%, its highest margins in about a year.
Yandex also delivered a good performance across metrics like its market share in Russia, mobile market share, search queries, CPCs and Paid clicks, with most metrics showing improvements in Q3. You can also watch our Yandex stock analysis video for a quick roundup of the company's Q3 performance.
At a stock price of $15.87 a share, Yandex valuations are as follows:
- Yandex PE ratio - 14.2
- Yandex Price to Sales ratio - 3.7
Yandex valuations have come under pressure due to a combination of macro-economic and geo-political factors which could pose a risk to the Russian economy and thereby the company’s financial health.
Yandex’s earnings announcement later this month could define the course of its stock price movement over the coming months. The slide in crude oil prices could severely hamper the Russian economy and drive a curb in ad-spends, making revenue the key number to watch out for in Q4. For now, external risks could outweigh attractive Yandex valuations.