Russian IT giant Yandex on April 28 reported its 1Q15 net profit under US GAAP totaled RUB2.2bn ($40.5mn),which exceeded the consensus of RUB1.9bn but was 21% lower y/y due to an increased cost of personnel and rent expenses. Total revenues grew by 13% y/y to RUB12.3bn, and adjusted EBITDA was at RUB3.6bn, equivalent to a 28.9% adjusted EBITDA margin.

EBITDA exceeded Bloomberg's consensus guidance of RUB3.5bn, while revenues were in line with prognosis. Adjusted EBITDA profitability was 29% in 1Q15, compared with 37% in 1Q14. VTB Capital analysts note that neither consensus on EBITDA nor their estimates were aggressive, as the market largely expected strong pressure on margins from USD-denominated rent and personnel expenses.

“This is below our FY15 forecast of a 34% margin, but with the ruble having appreciated substantially over the past few months we think the negative impact on Yandex’s margins was the most pronounced in 1Q15, and profitability should be higher in the future,” Renaissance Capital analysts said in a note.

The company reported 14% y/y revenue growth from text-based ads on its own website, with its advertising network showing 13% growth. Display ad revenue decreased by 16% y/y, with display ad revenue on Yandex websites down by 19% y/y.

The number of advertisers grew to 323,000, or by 14% y/y, the same growth pace as in 4Q14, paid clicks increased by 12% and cost per click was up by 2% vs 3% in 4Q14. Product development expenses increased by 67% y/y vs 62% in 4Q14 due to a rise in personnel and rental costs amid ruble depreciation. 

The company expects 2Q15 revenue growth of 9-12% y/y. The modest forecast implies that revenue growth is decelerating, despite an easier base period, which analysts expect to be received negatively by the market, possibly leading to consensus downgrades/near-term share-price underperformance.

VTB Capital analysts expect that despite the slowing growth guidance, Yandex has a good chance of improving its margins in the coming quarters, were the ruble to stabilise at its current lower levels.