The Tactical Short Case For Yandex
Elevator Pitch
Yandex will not live up to elevated expectations for 2nd quarter earnings given seasonal weakness as has already been confirmed by liveinternet.ru stats. Significant share offering following the announcement of results will depress the share price and warrants a short.
Thesis & Catalyst For Yandex N.V. (YNDX)
Although I am longer term bullish on YNDX shares, after a nearly 50% move since last quarterly earnings I have sold my long position and initiated a short. The company in all its likelihood will fail to live up to the hype of investor expectation given seasonal weakness in the second quarter which is confirmed by underlying stats reported by liveinternet.ru. The company hinted as much during its first quarter conference call in reference to long seasonal holidays in Russia. Shorting ahead of possible 2nd quarter earnings disappointment (relative to exuberant expectations) might not be sufficient for most investors. However there are strong indications the company's last remaining PE investors will take advantage of the recent share ramp up to divest their remaining large stake in the business, as they have done earlier this year at around 22.75 (currently trading above 30/share). Needless to say, PE investors have made an absurd amount of money on their Yandex investment and are not price sensitive. Their decision to divest is only limited by the investors' appetite in the shares, which seems high at the moment. I would expect approximately $900m -$1b to come to the market within a couple of weeks of the earnings announcement. This is roughly 10% of total market cap and somewhat higher of the current float. Currently shares are at 30.7/share and could get priced at 26-27 level depending on prevailing market conditions. Tactically speaking the downside is attractive enough to initiate a short in anticipation of such offering. I continue to like Yandex longer term with $35 year-end target and would be covering my short on the offering.
Valuation
Short term (within 30 days) target of $26-27 depending on prevailing market conditions. Current share price of 30.7.
Disclosure: I am short YNDX.
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