Yandex NV (YNDX): What’s Holding Back This Search Giant?

Page 1 of 2

Today, many growing businesses in emerging markets claim to be the “next Amazon.com, Inc. (NASDAQ:AMZN)Google Inc (NASDAQ:GOOG) or eBay Inc (NASDAQ:EBAY).” The prospect that a relatively small company can ride a macro growth trend in a rapidly growing economy is undeniably appealing, and Russia’s search engine Yandex NV (NASDAQ:YNDX) is no exception. Often called the “Google of Russia,” Yandex was once a core holding for many emerging markets investors. But since its public debut in 2011, the stock has lost nearly 30% of its value.

Yandex NV (NASDAQ:YNDX)Despite its lackluster stock performance, Yandex still controls 60% of the search market in Russia, one of the world’s key emerging markets. If so, what’s weighing this stock down? Let’s examine some key factors.

To get a better perspective of how Yandex measures up to its competitors, we should compare its financial health to its market peers in the United States and China – Google and Baidu.com, Inc. (ADR) (NASDAQ:BIDU).

Company Forward P/E PEG Ratio Price to Sales Price to Book Debt to Equity
Google 14.25 1.2 5.1 3.57 10.05
Yandex 0.71 1.0 9.5 7.28 N/A (no debt)
Baidu 18.16 0.65 11.64 10.27 11.91
Advantage Yandex Baidu Google Google Yandex

Source: Yahoo Finance

Yandex is a very fundamentally appealing stock, with strong growth ratios and no debt. However, that’s only half the story. We should also chart its earnings and revenue growth over the past year.


GOOG Revenue TTM data by YCharts

From this chart, we see that even though Yandex’s revenue rose 27.57% in the past two years, its EBITDA only grew by 3.75% after posting negative growth throughout most of 2012. Notice that Baidu has done the best job of keeping revenue and earnings growth synchronized, while Google’s earnings growth has slowed considerably due to its costly acquisition of Motorola. This split between revenue and EBITDA growth tells us that Yandex’s margins are getting squeezed. The next chart confirms that.


GOOG Operating Margin TTM data by YCharts

Over the past year, Yandex’s operating margin has dropped 28.37%, while cash is barely growing at all. That means Yandex is facing the classic Internet growth problem – high revenue growth weighed down by oversized marketing and expansion costs, which cut deep into margins and profit.
Yandex faces no real domestic competition in Russia, but Google and Facebook Inc (NASDAQ:FB),which can be freely accessed in Russia, are two looming threats. The fact that Google and Facebook are both banned in China has been a huge boon to Baidu and social network Renren Inc (NYSE:RENN).

Take a look at Google’s market share performance in Russia over the past three years to see why Yandex investors are worried.

1/31/2011 1/31/2012 1/31/2013
Google 21.9% 25.9% 26.4%
Yandex 64.4% 59.6% 60.5%

Source: http://www.liveinternet.ru

Despite a minor recovery over the past year, it’s clear that Yandex, which only has $384.4 million in cash, is being dominated by Google, which can wage an endless war with its $48 billion cash hoard. Factor in Android and the growing mobile market in Russia, and Yandex has a serious problem to contend with.
Facebook, which has 7.6 million users in Russia, has also made it clear that Yandex is not welcome to search its social networks. Yandex recently launched a beta version of the Wonder mobile app, which allows voice searches of social network activities across Facebook and Twitter accounts. Yandex maintained that Wonder wasn’t a “search engine” but rather a “searchable index,” but Facebook immediately took notice.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!