FOCUS: Yandex does remarkably well Q3, foreign parent’s future uncertain

By Yekaterina Yezhova

MOSCOW, Nov 14 (PRIME) -- Russian Internet giant Yandex has demonstrated outstanding July–September results and the growth of its market share, mainly thanks to the exodus of foreign competitors, while the company is yet to deal with its holding firm’s Dutch residence, analysts said.

“The quarterly increase of Yandex’s revenue by 46% on the year should be viewed as strong. A quarter-to-quarter fall of group’s EBITDA does not look overly worrying yet. The worsening of the indicator looks quite normal for the ongoing extraordinary conditions,” investment company Algo Capital senior risk manager Vitaly Manzhos told PRIME.

Yandex posted a net income of 45.5 billion rubles in July–September after a net loss of 3.9 billion rubles a year earlier. Revenue advanced by 46% on the year to 133.2 billion rubles, adjusted EBITDA leaped by 256% on the year to 20 billion rubles. In April–June, adjusted EBITDA rocketed by 345% to 25.7 billion rubles.

Yandex stated a one-off non-cash gain as a result of deconsolidation of its infotainment service Zen and news aggregator News, swapped with Internet company VK for delivery service Delivery Club in September, at 38 billion rubles.

Investment company Veles Capital analyst Artyom Mikhailin said deconsolidation of Zen and inclusion of Delivery Club into the statement have not impacted the results significantly and the effects will be pronounced later.

Manzhos at Algo Capital said quoting expert estimations that Delivery Club was lossmaking before the change of the owner. “We should wait till the next quarterly report,” he said.

Acquisition of Delivery Club may be a step into the future. “Expansion of business at the intersection of the virtual and physical reality, in the online-to-offline segment, may be a strategically important point of growth for the IT company. It will improve its future stability,” the Algo Capital analyst said.

Yandex said that revenue of its e-commerce, mobility and delivery business rose by 49% on the year to 63.3 billion rubles. Its negative total adjusted EBITDA narrowed by 77% to minus 2.4 billion rubles.

The company abstained from sharing any outlook “given that uncertainty concerning future geopolitical developments and the macro environment remains high,” as Yandex put it in the statement.

“It should be understood that the increase of Yandex’s share on the Russian market hinges mainly on the retreat or limitation of operations of its foreign competitors. In other words, the current improvement of the indicators does not depend a lot on the company and is of a one-time situational nature,” Manzhos said.

A whole pack of foreign IT companies have pulled out or curbed their operations in the country, including Google that suspended advertising on its search and YouTube products; Microsoft that suspended local sales and services; IBM that paused its business in the country; and SAP that halted sales and will wind down its local business.

Yandex’s share on the country’s search market added 2.7 percentage points on the year to 62%. Its search share on Android climbed by 3.1 percentage points to 61.9% and on iOS by 5.5 percentage points to 48.3%.

Manzhos also said that the company has cut potential risks with the purchase of 99% of its convertible bonds. “However, Yandex’s registration in a foreign jurisdiction poses serious regulatory threats both inside the Russian Federation and outside it in the current situation,” he told PRIME. Russian firm OOO Yandex fully belongs to Dutch firm Yandex N.V.

“By the logic of developments, redomiciliation of Yandex or the majority of its business to the Russian Federation looks as the most probable scenario. In view of the political component of the situation, certain part of the foreign business should become unaffiliated with the parent company,” Manzhos said.

“Probably, an analogue of the Russian scheme used by the leaving foreign companies could be applied. We mean real or formal transition of the ownership rights to the top managers who had no large stakes before.”

He recommended using only technical factors when assessing Yandex’ future quotations due to the high degree of uncertainty regarding future fundamental conditions of its operations. “From this point of view, Yandex’s shares stay oversold and keep potential for a large scale recovery,” Manzhos said.

The stock has gained 5.8% over a month, but has fallen by 53% since the beginning of the year, closing the November 11 session at 2,119.80 rubles.

The Algo Capital analyst set the target at 2,400–3,000 rubles for the end of 2022 and at 4,500–6,000 rubles for the next 12 months.

(60.2179 rubles – U.S. $1)

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