Russian internet major Yandex misses expectations in third quarter

Russian internet major Yandex misses expectations in third quarter
Investment in Yandex.Taxi is said to have impacted on Yandex's overall revenue growth in the third quarter of 2017
By bne IntelliNews October 24, 2017

Russian internet services major Yandex posted revenue growth of 21% year-on-year to RUB23.4bn ($406mn) in the third quarter of 2017 under US GAAP (generally accepted accounting principles), the company said on October 24. While the revenues matched expectations, the adjusted Ebitda of RUB5.7bn and net profit of RUB2.4bn missed the forecast by 6% and 20%, respectively, according to the Interfax analyst survey.

Renaissance Capital attributed underperforming results to higher marketing spending and ongoing investments in Yandex.Taxi pressuring the margins, the analysts commented on October 24.

The third-quarter strong pressures on margins was "hardly a surprise," VTB Capital commented, given the company's increased investments in promoting its search on the back of Google backing down to the Federal Anti-Monopoly Service (FAS) and Yandex's continuing strong investments into rolling out the taxi business. 

Nevertheless, VTB sees the growth profile of Yandex as remaining solid, which is matched by the company increasing its 2017 growth guidance from 18-21% to 22-23%. The pressure on margins is expected to abate.

"We continue to see Yandex as a fundamentally attractive story and think that any correction in the name on the back of 3Q17 numbers, were it to happen, could be seen as an entry opportunity," VTB noted, while reiterating a recommendation to buy and a 12-month target price of $37 implying an estimated total return of 20%.

Renaissance Capital, at the same time, remains cautious, reminding that despite the recent Uber deal, the taxi business will require significant investments in the medium term and that Google remains very well positioned on mobile devices.

Yandex.Taxi saw its Ebitda decline by 800% y/y to negative RUB6.38bn ($111mn) in January-June, the company said on October 24. For the July-September accounting period, its Ebitda was RUB3.17bn.

Yandex US GAAP 3Q17 financial highlights
RUB mn 3Q16 2Q17 3Q17 Chng QoQ Chng YoY 3Q17F, VTBC Diff. 3Q17 Cons* Diff.
Revenue 19293 22104 23438 0.06 0.21 23327 0 23440 0
Adj. EBITDA 6888 7213 5695 -0.21 -0.17 5693 0 6000 -0.05
Adj. EBITDA margin 0.357 0.326 0.243 -8.3pp -11.4pp 0.244 -0.1pp 0.256
Adj. net income 3793 3990 2371 -0.41 -0.37 2609 -0.09 3000 -0.21
Adj. net margin 0.197 0.181 0.101 -7.9pp -9.5pp 0.112 -1.1pp 0.128
Source: Company data, VTB Capital Research; * Interfax as of 23 October 2017

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