FOCUS: Yandex performs remarkably in Q1, investors wait for split details

By Yekaterina Yezhova

MOSCOW, May 10 (PRIME) -- Surging search and e-commerce made Yandex’s fourth quarter financials look lackluster compared with January–March figures, but analysts said the investors are still waiting for details of the upcoming restructuring of the Internet company.

“The January–March report showed a new strong set of results, above our expectations thanks to the upbeat dynamics in the segment of search and portal. The company maintained high investment in e-commerce and other initiatives. The considered change of the corporate structure is an uncertainty for the company’s shares,” BCS World of Investment senior analyst Maria Sukhanova told PRIME.

“We expect confident revenue growth to continue in 2023, which will enable the company to raise investment in the promising segments, such as e-commerce. However, the announced revision of management and property structure whose details are not public may impact the company’s investment case significantly.”

Yandex said in the January–March statement that its board “is progressing the proposed restructuring of the Yandex group’s overall ownership and governance with a view to ensuring the group’s sustainable development and success of all of our businesses over the longer term”.

The board is working on the potential divestment by Dutch parent company Yandex N.V. of ownership and control of some core businesses, including all Russia-based ones. “Our goal is to come to our shareholders for approval of a restructuring proposal later this year,” the company said.

Sinara Bank analyst Konstantin Belov expects fairness to the company’s minority shareholders during the restructuring in the basic scenario.

Yandex’s ordinary shares climbed by 7.9% since the beginning of the year closing at 1,959 rubles on May 5 on the Moscow Exchange.

“The 12-month target for the shares is set at 3,500 rubles, which is based on the company’s cash flows, we do not take into account the restructuring factor since there is no clarity about the deal yet,” Sukhanova at BCS World of Investment told PRIME.

Investment company Veles Capital set the target at 3,130 rubles with a Buy recommendation, while investment company Freedom Finance Global set a six-month target at 2,500 rubles.

Veles Capital analyst Artyom Mikhailin said the company’s January–March revenue growth accelerated from October–December and the reporting period has become the strongest for over a year.

“The search segment showed outstanding results, although the company points to slowing of the rise in April on the back of a higher comparison base. The other directions either improved their results against the previous reporting period or showed a comparable increase,” he added in a note.

Yandex’s total revenue rose by 54% on the year to 163.275 billion rubles in January–March. The Search and Portal revenue advanced by 54% to 67.545 billion rubles, and the E-Commerce, Mobility, and Delivery revenue jumped by 60% to 88.475 billion rubles.

The company’s share on the Russian search market added 2.3 percentage points to 63.3%. The search share on the Android devices rose by 2.7 percentage points to 62.6%, and the search share on the iOS market widened by 3 percentage points to 49.1%.

Freedom Finance Global leading analyst Natalya Milchakova said that the Search and Portal segment is the company’s most profitable business, while many of its new services are still at a startup stage and bring no profit yet.

“Also, the new segments, such as RideTech, including services of taxi and delivery YandexGo, kick sharing, e-commerce, and cloud services have a significant growth potential not only of income but also profit,” she said in a note.

The company’s total adjusted EBITDA rocketed to 12.794 billion rubles from 1.271 billion rubles a year earlier, and the total adjusted EBITDA margin climbed 6.6 percentage points to 7.8%. Yandex posted a net income of 5.785 billion rubles after a net loss of 13.037 billion rubles in January–March 2022.

“Such a strong increase of EBITDA and the net profit on the year is explained by a rapid rise of revenue and the company’s withdrawal from some non-core businesses,” Milchakova said.

Yandex completed a swap of its news aggregation platform and infotainment service Zen with Internet company VK in exchange for food delivery service Delivery Club in September 2022.

(76.8207 rubles – U.S. $1)

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