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

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

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!