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Yandex (YNDX) Up 2.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Yandex (YNDX). Shares have added about 2.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Yandex due for a pullback? 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 Q1 Earnings & Revenues Miss Estimates

Yandex reported first-quarter 2020 adjusted earnings of 19 cents per share, missing the Zacks Consensus Estimate by 32.1%. In ruble terms, the company’s earnings came in at RUB 17.33 per share, which surged 63.6% from the year-ago quarter.

Revenues of $604.7 million (RUB 47 billion) lagged the Zacks Consensus Estimate of $747 million. The figure reflected year-over-year growth of 26.1% in ruble terms.

The company’s growing advertising revenues and solid momentum in the Russian search market drove the top line during the reported quarter. Additionally, it witnessed year-over-year growth of 23% in paid clicks during the reported quarter.

Well-performing Search, Classifieds, Media Services and Experiments segments of the company significantly contributed to the results.

Although coronavirus-induced social distancing did not bode well for the company’s ride-hailing services, the Taxi segment delivered strong year-over-year growth during the reported quarter.

However, increasing expenses hurt margin expansion during the reported quarter.

Nevertheless, Yandex’s strong momentum across the Taxi and ride sharing business remains a major positive. Moreover, the company’s strengthening presence in the self-driving car space and growing mobile search share remain tailwinds. All these factors are likely to instil investor optimism.

However, the company has withdrawn its guidance for full-year 2020 due to uncertainties related to the coronavirus pandemic.

Nevertheless, Yandex has taken initiatives like salary cut and curtailing non-essential expenses in a bid to minimize the impacts of coronavirus, which is noteworthy.

Top-Line Details

Total online advertising revenues amounted to RUB 30.1 billion (64.1% of total revenues), reflecting growth of 11% on a year-over-year basis.

This can primarily be attributed to robust performance of Yandex properties, which accounted for 80.5% of total advertising revenues and exhibited 16% year-over-year growth.

However, Advertising network revenues, which contributed 19.5% to total advertising revenues, declined 4% from the year-ago quarter.

Taxi revenues of RUB 11.4 billion (24.2% of total revenues) surged 50% on a year-over-year basis, driven by increasing number of rides.

Other revenues of RUB 5.5 billion (11.7% of total revenues) soared 111% from the prior-year quarter. This was primarily driven by well performing Yandex.Drive and Media Services. Strong IoT initiatives remain a positive.

Segments in Detail

Search and Portal: The segment generated RUB 30.1 billion revenues (64.1% of total revenues), up 11% year over year. The company’s strong position in the Russian search market remains a key catalyst. Notably, its market share was 58.1% during the reported quarter, up 110 basis points (bps) year over year. This can be attributed to expanding Yandex’s mobile search share. Notably, mobile revenues accounted for 50.4% of the company's search revenues. Further, mobile search traffic accounted for 59% of total search traffic. This was driven by Yandex’s search share on Android, which came in at 55.5%, expanding 430 bps from the year-ago quarter.

Taxi: The segment generated RUB 11.4 billion revenues (24.3% of revenues), surging 50% from the year-ago quarter. The impressive year-over-year growth was driven by increasing number of rides that advanced 40% from the prior-year quarter on the back of strengthening ride sharing business. Further, robust performance of corporate Taxi and food delivery business aided the segment’s results. Also, positive contributions from Yandex.Lavka and Yandex.Eats remained positives.

Classifieds: The segment generated revenues of RUB 1.5 billion (3.2% of revenues), reflecting an improvement of 35% year over year. Accelerating revenues from listing fees and value added service drove the segment’s top line.

Media Services: The segment generated revenues of RUB 1.4 billion (3% of revenues), climbing 95% from the year-ago quarter. This can primarily be attributed to solid momentum across KinoPoisk and Yandex.Music, which generated strong subscription revenues.

Other Bets and Experiments: The segment yielded RUB 4.9 billion revenues (10.4% of total revenues), up 98% from the prior-year quarter. This was driven by robust performance of Yandex’s Zen, Yandex.Drive and Geo services.

Operating Details

In first-quarter 2019, adjusted net income margin was 11%, contracting 360 bps from the year-ago quarter.

Its operating margin came in at 11.3% in the reported quarter, contracting 310 bps on a year-over-year basis.

Further, adjusted EBITDA margin was 25.8%, which contracted 310 bps year over year.

Operating expenses — as a percentage of revenues — was 88.7%, expanding 310 bps from the year-ago quarter.

The company’s total traffic acquisition cost came in at RUB 5.4 billion, climbing 2% on a year-over-year basis. As a percentage of revenues, the figure contracted 270 bps year over year to 11.6% in the reported quarter.

Balance Sheet & Cash Flows

As of Mar 31, 2020, cash and cash equivalents were $1.6 billion, up from $911.3 million on Dec 31, 2019.

Accounts Receivables totaled $216.7 million, decreasing from $288.1million in the previous quarter.

In the first quarter, cash flow from operations was $99 million, which declined from the prior-quarter figure of $139.3 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -30.95% due to these changes.

VGM Scores

At this time, Yandex has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Yandex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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