Yandex Valuations Attractive Even After Huge Rally

  • Yandex stock price has risen 64% in 2 months.
  • Yandex has solid fundamentals and attractive valuations.
  • Yandex has a 24% potential upside even after a huge rally.

Yandex Valuations Attractive Even after huge rally

Yandex (NASDAQ:YNDX) has recorded a strong rebound from its 52 week low of $21.7 in April 2014. Up 64% in the last two months, the company now trades at a stock price of $35 a share. The stock remains attractive at its current valuations given Yandex’s financial track record. Further, the company’s Q1 2014 earnings release put to rest some concerns about how Yandex would be impacted by the Ukraine crisis. The fact that Yandex’s FY 2014 revenue guidance remains unchanged is a positive for shareholders. With its dominance over Russia’s search market, if Yandex can sustain its performance through Q2 2014, the stock price could appreciate further.

Earlier this year, Yandex’s stock price plummeted from its all-time high of $45.4 a share to $21.7 as the crisis in Ukraine threatened Russia’s economic outlook. With its high dependence on advertising revenues, an economic downturn is bad news for Yandex, at least in the short term. However, given Yandex’s strong market share in Russia, its solid fundamentals and attractive valuations, we have been bullish about the stock’s long term prospects. Here’s why Yandex is part of our list of stocks to buy!

Yandex Revenue Growth & Profitability

Over the last three years, Yandex has sustained a Compounded Annual revenue Growth Rate (CAGR) of over 30%. Over the same three year period, Yandex has clocked average operating and net profit margins of 33% and 30% respectively combined with an average revenue growth of 48%. Revenue growth slowed in FY 2013. However, during the same period, Yandex’s profitability has remained robust.

Yandex Historical Financial Performance

In Q1 2014, Yandex’s revenue growth in USD might come across as weak due to the Y/Y (over Q1 2013) depreciation of Yandex’s base currency, the RUR (Russian Ruble). Yandex recorded a revenue of $305 million in Q1 2014 (RUR 10.96 billion). However, the company registered a solid growth rate of 39% in RUR terms, after adjusting for revenue from Yandex.Money, its divested payments business, in the same quarter a year ago.

In Q1 2014, Yandex reported operating and net profit margins of about 25% each. Personnel costs and social taxes which are frontloaded at the beginning of the year weighed down profit margins, as did rising Traffic Acquisition Costs (TAC). Profit margins are expected to improve moving further into the year. However, margins might be between 1-3% lower than they were in FY 2013.

Yandex ended Q1 2014 with cash and cash equivalents of $1.42 billion.

Yandex Market Share

Yandex continued to dominate Russia’s internet search market with a market share of 61.9%. Interestingly, the company’s market share also expanded by 2% to reach 30% in Ukraine, contrary to expectations following the tensions between Russia and Ukraine.

Yandex also expanded its search share on mobile devices to account for an estimated 54% of total searches.

Yandex Future Outlook

Though Yandex missed revenue estimates marginally in Q1 2014, the most important take-away from the earnings release was that Yandex was largely unaffected by the Ukraine crisis. Investors would have found comfort in the fact that the company also maintained its full year revenue guidance for FY 2014, indicating that business is on track.

During the previous earnings conference call, Yandex expressed that it sees no immediate threat in the recent macro-economic strains on the Russian economy. Further, it expects to see faster growth in revenue from foreign clients going forward. Yandex also introduced multi-currency bidding on its programmatic ad buying platform Yandex.Direct, to make bidding easier for advertisers from different countries. The move will also give Yandex access to a stronger currency and effectively hedge some portion of its revenue, as it is required to report revenues in USD as well.

Yandex’s strong grip over Russia’s search market strengthens its prospects, as Russia is now home to Europe’s largest internet user base. Further, the company’s tie up with Nokia to pre-install Yandex apps could help Yandex improve its search share and presence on mobile platforms. Yandex has recently launched its own local listings service similar to that of YELP’s (NYSE:YELP) to expand its location based services. This again should help Yandex increase its access to more mobile users who are a highly valued commodity in today’s internet economy.

Yandex Stock Valuation

Yandex currently trades at a stock price of $35 a share. Yandex still trades at valuations which are lower than its historical levels prior to the Ukraine crisis.

Yandex Baidu Google
Price/Sales (PS ratio) 8.8 11.6 6.5
Price/Earnings (PE ratio) 26.6 37.2 30.6

In terms of growth and profitability, Baidu (NASDAQ:BIDU) leads the pack followed by Yandex and then Google (NASDAQ:GOOG). So, it is safe to value Yandex at average P/S and P/E multiples of its two peers. While Yandex currently trades below both averages, in terms of its P/E valuation, Yandex trades well below the average of 33.4. Yandex’s current P/E valuation indicates a potential upside of close to 24% with a target price of $44 a share, close to the its all-time high.

Given Yandex’s robust fundamentals and attractive valuations, at its current stock price, we re-iterate our buy rating on Yandex.

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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