It has been about a month since the last earnings report for Yandex (YNDX). Shares have lost about 6.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Yandex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Yandex's Q2 Earnings Miss, Revenues Beat
Yandex reported second-quarter 2019 adjusted earnings of 27 cents (RUB 11.03) per share missing the Zacks Consensus Estimate by 10 cents. Further, the figure was significantly down from the year-ago quarter’s figure of RUB 99.
Revenues of $656.3 million (RUB 41.4 billion) surpassed the Zacks Consensus Estimate of $605 million. The figure exhibited year-over-year growth of 40% in ruble terms.
The company’s growing advertising revenues, solid momentum in the Russian search market and robust performance by its Taxi segment drove the top line during the reported quarter. Further, well-performing Classifieds, Media Services and Experiments segments of the company contributed to the results.
Additionally, the company witnessed growth of 17% in its paid clicks during the reported quarter.
However, the deconsolidation effect of Yandex.Market continued to be a headwind throughout the second quarter. Excluding this impact, year-over-year growth in paid clicks would have been at 20%. Further, revenues would have exhibited growth of 41% on a year-over-year basis.
Additionally, net income would have declined 3% year over year instead of 90% which includes deconsolidation effect.
Nevertheless, Yandex’s strong momentum across its Taxi and ride sharing business remains a major positive. Moreover, the company has raised revenue outlook for 2019, which is likely to aid it in gaining investor confidence in the near term.
Total online advertising revenues came in RUB 29.14 billion (70.4% of total revenues), exhibiting growth of 19% on a year-over-year basis.
This was primarily driven by robust performance of Yandex properties, which accounted for 78.4% of the total advertising revenues and exhibited year-over-year growth of 21.1%. Further, Advertising network revenues contributed 21.6% to advertising revenues and improved 12% from the year-ago quarter.
Excluding deconsolidation effect of Yandex.Market, the online advertising revenues would have improved 21%.
Taxi revenues of $8.8 billion (21.3% of total revenues) surged 117% on a year-over-year basis, driven by increasing number of rides.
Other revenues of RUB 3.5 billion (8.3% of total revenues) soared 207.1% from the prior-year quarter. This can be attributed to the well-performing Yandex.Drive and Media Services. Further, strong IoT initiatives remained positive.
Segments in Detail
Search and Portal: The segment generated RUB 29.1 billion revenues (70.2% of total revenues), up 21.4% year over year. The company’s strong position in the Russian search market remains a key catalyst. Notably, its market share reached 56.9% during the reported quarter, which went up 70 bps year over year. This can be attributed to Yandex’s search share on Android which came in 52.3%, expanded 450 bps from the year-ago quarter.
Taxi: The segment generated RUB 8.8 billion revenues (21.3% of revenues), surging a whopping 117% from the year-ago quarter. Impressive year-over-year growth was driven by increasing number of rides that advanced 49% from the prior-year quarter. This drove growth in the company’s ridesharing business. Further, robust performance by corporate Taxi and food delivery business contributed to segment’s results.
Classifieds: The segment generated revenues of RUB 1.3 billion (3.1% of revenues), advancing 42.3% year over year. Revenues from listing fees and value added service (VAS), which surged 90% year over year, drove the segment’s top line.
Media Services: The segment generated revenues of RUB 876 million (2.1% of revenues), advancing 122% from the year-ago quarter. This came on the back of increasing subscription services and video advertising revenues on account of growth in video content inventory and integration of KinoPoisk.
Other Bets and Experiments: The segment yielded RUB 3.4 billion revenues (8.2% of total revenues), up 203% from the prior-year quarter. This was driven by robust performance of Yandex’s Zen, Yandex.Drive and Geo services.
In second-quarter 2019, adjusted net income margin was 14.1%, contracting 280 bps from the year-ago quarter.
Per the company, its operating margin came in 16.9% in the second quarter, expanding 250 bps from the year-ago quarter.
Further, Adjusted EBITDA margin was 31.6%, expanding 210 bps year over year.
Operating expenses as a percentage of revenue was 83.1%, contracting 250 bps from the year-ago quarter.
The company’s total traffic acquisition cost (TAC) came in RUB 5.6 billion, surging 18% on a year-over-year basis.
Balance Sheet & Cash Flows
As of Mar 31, 2019, cash and cash equivalents were $536 million, down from $831.5 million as of Mar 31, 2019.
Accounts Receivables totaled $254.4 million, increasing from $233.8 million in the previous quarter.
For the second quarter, cash flow from operations was $167.1 million, which surged from the previous-quarter figure of $162.6 million.
For 2019, management raised guided range for revenue growth from 30-34% to 32-36% in ruble terms from 2018, excluding the Yandex.Market.
Further, the company expects revenue growth in Search and Portal in the range of 19-21% from 2018 in ruble terms.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -19.1% due to these changes.
At this time, Yandex has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Yandex has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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