Yandex: Taxi And E-Commerce Creating Value

Summary

• Even though Yandex's advertising revenue was below 50% for the first time, the company remains strongly dependent on this business area as it consistently generates positive EBITDA and FCF.

• The taxi segment will grow by an average of 15%, while becoming a new cash cow for other Yandex projects.

• The e-commerce segment continues to cause losses until at least 2024, and spends the FCF that the advertising and taxi businesses generate.

Yandex (NASDAQ and MOEX: YNDX) is an Internet and technology company that builds intelligent products, operates Internet search engine and services powered by machine learning. With over 30 officers worldwide, the company has been listed on the NASDAQ since 2011 and Moscow Exchange since 2014 with the mandate of developing leading transportation services, navigation products, as well as mobile applications for millions of consumers globally.

Yandex (YNDX) has displayed a potential monthly growth of 6.77% as the stock price continues it’s up trends. Regardless of the noteworthy growth of the stock recently, we consider that Yandex (YNDX) has the prospect to grow by minimum of 15% due to its domination in e-commerce business and the taxi market.

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Recent Financial Result:

Yandex's revenue growth has been surging for years, and the Q1 of 2021 is no exception. For the Q1 which ended in March 31, 2021, Yandex (YNDX) revenue surged by 55.6% YoY to USD 966.10 million. According to the company’s report, loss from operations came in at USD 14 million, associated to USD 68.10 million in income in the previous year period. Yandex also reported a loss per share as USD 0.14 for the quarter, compared to EPS of USD 0.22 in the previous year period. The total cash the company had was USD 1.23 billion added with cash equivalents and restricted cash. Adjusted net income also decreased by 57.3% YoY to USD 29.10 million.

Over the past three years, Yandex revenue surged 34.7% and net income also surged at CAGRs of 14.9%. The company also reported an increased EPS of 12% CAGR.

we expect Yandex’s revenue to increase 77% YoY as well as 55.1% YoY for Fy 2021, and 34.8% for Fy 2022. The company’s EPS is also expected to report growth of 32.2% for the Fy 2021 and 62.9% for Fy 2022. Nevertheless, in the next five years, we expect the stock’s EPS to grow slightly.

Latest Developments

On June 3, 2021, Yandex signed an agreement to produce servers and data storage systems for data centers and smart device components, this agreement was signed to form a joint venture with IT group LANIT, State-owned VTB Bank and computer equipment manufacturer Gigabyte Technology. Yandex hopes to tap into Russia’s rising market for server hardware as this joint venture tends to construct a plant in Russia with plans to moderately reposition its server production from China and Taiwan to Russia and as well install these servers in its own data centers in order to expand its platform called Yandex.Cloud. This plant is intended to produce servers and data storage systems that houses data hubs and components for smart devices.

With plans to spend USD 400 – 500 million on an e-commerce drive this year, Yandex agreed to buy an online fashion retailer KupiVIP in an announcement on May 31, 2021. KupiVIP works with over 3,000 Russian and foreign suppliers to offer products from over 1,000 brands. The Company will gradually be integrated into the Yandex.Makrket platform. This deal is subject to supervision and would be accomplished in the Q3 of 2021.

E-commerce

Yandex recorded a revenue for Q1 2021 as USD 967.3 million, which amounts to 10% the company’s total combined revenue. Due to a negative result from the company’s Adjusted EBITDA, We assume the company will capitalize free cash flow from the publicity business in the growth of this segment for the minimum of two years.

By Fy2025, we believe that this direction will reinforce the company’s market position sooner, given its modest improvement. Revenue from this area is also expected to grow yearly by minimum of 26% and should exhibition a total revenue structure of 16% increase. Extension of products lines and promotions as well as positive EBITDA before 2024 is part of the future expectations of this company.

There are similar companies with same models of marketplace and wide range of products and fast delivery in Russia that compete with Yandex, the likes of Wildberries and Ozon. Despite this tussles and competition from this companies, Yandex is still recording a successful e-commerce division owing to the fact that Yandex has profound proficiency in the logistics and transportation business which gives them the opportunity to snatch a substantial part of the e-commerce market. The company can as well use its search engine to redirect users to their e-commerce products. Yandex also offers concessions to its subscribers to subsidize the amount payable to its products.

Publicity

Yandex reported an uncommon share of non-advertising revenue which exceeded 50% in Q1 2021. The other segments of the company reported a negative EBITDA while the company’s advertising business breeds a large fraction of EBITDA and Free cash flow (FCF).

Figures from Yandex.Radar reported that the company’s share in search engine market in Russia is 59.7% with revenue from online advertising surge of 20%.

According to AKAR, the advertising market for Fy 2020 declined by 4%, though the section of online publicity grew by 1%. Therefore, Yandex presented outperforming progress. The online advertising market exhibited the worst changing aspects in 20 years owing to the COVID pandemic.The Russian advertising market, as well as its online advertising is expected to grow sooner putting to mind the recovery of the Russian economy in 2021 and 2022.

Table 1: The Russian advertising market report 2001 to 2020

Source: AKAR advertising market report 2020

The market declined by 8% during the predicament of 2015 as well as 28% in 2009 with GDP also falling back by 3.7% and 8.5% respectively.

Media Services Subscribers:

Number of Yandex Plus subscribers reached 9 million active users as at the end of Q1 2021, this segment saw growth of 141% as at end of Q1 2020.

With the latest developments within the company, we anticipate that by 2024 Yandex will upsurge the number of users to over 20 million active users.

Risks:

The fundamental danger for additional development of Yandex shares is an imposing business model situation in the hunt and taxi markets. In August last year, numerous contenders grumbled about the misuse of a restraining infrastructure position and the utilization of a web index to advance Yandex administrations. In the event that this danger is understood, the organization will be dependent upon a turnover punishment of 1 to 15% income. We gauge, in a cynical situation and getting a punishment of 15%, the offer value diminishes by close to 1%.

For the taxi portion, there is a danger that antimonopoly specialists will hinder the acquisition of Vezyot, which possesses about 6% of the market, which will lessen the development pace of Yandex.Taxi in the conjecture time frame. Besides, extra dangers are the conceivable constrained detachment of Yandex.Taxi because of the restraining infrastructure position on the lookout, the presentation of managed estimating on the lookout.

Conclusion

Yandex's valuation is generally modest; considering its development possibilities, it has a good overall arrangement sheet, and the organization is prepared to turn beneficial. Yandex's center business is solid: network impacts are assisting it with developing its client base in most countries. The organization is set for enormous natural development in the following decade, while its stock is evaluated at a sensible valuation as there is a potential for the stock to grow by 10%-12% in the long term to the level of $73-$75 per share. Even though Yandex's advertising revenue was below 50% for the first time, the company remains dependent on this business area. It consistently generates positive EBITDA and FCF. We expect that the company will increase the number of subscribers to 25 million by 2025.