Yandex's Business Remains Strong Despite The Ukraine Crisis

Sep. 04, 2014 4:05 AM ETYandex N.V. (YNDX)GOOG, GOOGL33 Comments


  • Yandex's latest Q2 quarter showed that its search business remains strong and that it has been growing steadily despite the Ukraine Crisis.
  • Yandex's stock was largely impacted by political events instead of business performance.
  • Management expects that the company will achieve a full-year revenue growth of 25% to 30% in 2014.
  • I believe that the stock will eventually recover when the Ukraine Crisis eases or is resolved.

On July 29, Yandex (NASDAQ:YNDX)-the largest search engine in Russia-released its latest Q2 earnings that showed the company's strong business performance despite the Ukraine Crisis.

Here are some of the Q2 earnings highlights (see the Press Release for the full list):

  • Revenues increased by 32% compared with Q2 2013.
  • Income from operations up 13% compared with Q2 2013.
  • Operating margin was 29.9%.
  • Adjusted net income up 9% compared with Q2 2013.

While Yandex's search engine business has been growing steadily over the past several quarters, the company's stock has dropped substantially (like many other Russian stocks) since early 2014 because of the Ukraine Crisis (see image below).

Source: Yahoo Finance

For those who like to invest in great companies for the long term, I believe that there are two important questions we should consider:

  • Does Yandex still have great long-term prospects and business fundamentals?
  • How will the Ukraine Crisis impact the company and its stock performance?

I will address both questions in this article and share my perspective on Yandex's long-term prospects.

Yandex's Business and Long-Term Prospects Remain Strong

First of all, when I analyze stocks, I like to look at them as businesses instead of stock certificates because in reality, they represent partial ownership of companies.

Even though Yandex's stock has dropped about 33% year to date (Jan 1 2014 to Sep 2 2014), the business has been performing quite well during the same period. For example, the company's revenue grew 32% year-over-year for Q2 2014 and 36% year-over-year for Q1 2014 (source:Financial Releases). According to LiveInternet, Yandex's Russian search market share was 61.6%, compared with Google's (GOOG) (GOOGL) 28.3% and's 7.4% for Q2 2014 (see image below).

Source: Yandex's Q2 2014 Earnings Slides

Yandex's primary competitor is Google, which has been gaining market share from (Russia's largest internet portal and email service) and Rambler. Sputnik is another notable competitor. It is a state-owned search engine that was launched in May this year in order to rival Yandex and Google. Despite the increasing competition, I believe that Yandex will continue to dominate in the Russian search market because it has the best search technologies and because it is already well adopted by the majority of people in Russia. Yandex's popularity and dominance in Russia is similar to Google's domination in most of the world-with the exception of China, where Baidu (BIDU) is the most dominant.

Yandex's search business has also been quite resilient during the Ukraine Crisis and the current economic sanctions against Russia that could lead the country to a recession. For example, the company's number of advertisers has been growing steadily at a decelerating rate since Q2 2012 (see image below). The company's revenues have also been growing steadily since Q2 2012 because of the increasing search queries by users and the increasing text-based advertising that match user queries, website content and user behaviors (this is similar to Google's contextual, text-based and cost-per-click advertising).

Source: Yandex's Q2 2014 Earnings Slides

Source: Yandex's Q2 2014 Earnings Slides

Over the next decade, I believe that Yandex's search business will continue to grow steadily because the online advertising market in Russia is still in the early growth stage and because more users are using internet search engines such as Yandex to search for content and to advertise their businesses. Hence, I believe that the company's revenue should grow at an average annual growth rate of 15% to 30% over the next five to ten years. In comparison, management expects that the company will achieve a full-year ruble-based revenue growth of 25% to 30% in 2014 (source:Press Release).

Ukraine Crisis' Impact on Yandex and Russian Stocks

The Russian Trading System Index (RTSI) has been impacted by the Ukraine Crisis and has dropped -15.3% since the beginning of the year. Yandex's stock has also been impacted even though the company's business has been growing steadily during the same period. Russian stocks, including Yandex, may not perform well in the short term until the Ukraine Crisis eases. However, in the long run, I believe that Yandex's stock will eventually recover because of the company's increasing revenues, earnings and free cash flows.

President Poroshenko recently dissolved the Ukraine parliament. More importantly, he called for early elections on October 26 in order to have new members who can better represent Ukrainians. At the same time, many people suspect that Russia is planning to annex eastern Ukraine that is largely pro-Russian like Crimea (western Ukraine is largely pro-European). While I do not know the outcome of the upcoming elections, I believe that the Ukraine Crisis will eventually be resolved, which should lead Yandex as well as other Russian stocks to recover from their past twelve months' historical lows.

The Bottom Line

I believe that Yandex's stock will eventually recover when the Ukraine Crisis eases or is resolved. The company's search business is quite resilient to the political conditions in Russia. More importantly, its search business has the largest market share in Russia and is growing with increasing revenues, user queries, advertisers and traffic. Hence, I believe that Yandex is still a great long-term investment­ even though the stock may not perform well in the short term because of the Ukraine Crisis.

Sources: Yandex's Q2 2014 Press Release, Q2 Conference Call, 2013 Annual Report, Yahoo Finance, Bloomberg and

The article was originally published on Intelligent Stocks on September 2.

This article was written by

My investment strategy is to always invest in the best companies that have increasing economic prospects and increasing economic moats. I always concentrate my investments on the best companies that have the best business prospects (mainly tech companies in my portfolio). According to Buffett, he said “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”My investments are “Apple, Amazon, Google, Facebook, Microsoft, MasterCard, Visa, Paypal, Alibaba, Tencent Holdings, Nvidia, AMD, Netflix, Tesla, Sea Limited, SalesForce, Snowflake, Adobe, Shopify, MercadoLibre.”

Disclosure: The author is long YNDX, GOOG. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

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