YNDX - Yandex: Uncertainty About The Company's Expected Outlook

Summary

• Yandex continues to increase its market share in the Russian market, however, it is still difficult to make assumptions about future cash flows.
• The company sold part of its media assets, which could have a negative impact on future profitability.
• Management announces business restructuring plans, raising investor concerns.

Introduction

Despite the fact that Yandex (YNDX) continues to show strong operating and financial results, trading in the shares is still suspended. In addition, uncertainty about the company's future prospects is increasing due to the sale of some of the group's media assets and unclear business restructuring plans, which increase investors' concerns.

Survey of Q3 results

The company published operating and financial results for the 3rd quarter of 2022 , which turned out to be stronger than investors' expectations. The company's revenue showed an increase of 46%, while EBITDA grew by 256%. The company's EBITDA margin increased from 6.2% in 3Q21 to 15% in 3Q22. In addition, it managed to demonstrate a positive net profit for the period.

In addition, the company continues to reduce operating costs to maintain profitability and create a financial cushion in the face of economic and geopolitical uncertainty in the Russian market, however, as I wrote earlier, lower investment in new products, advertising and personnel may have a negative impact on future growth rates revenue, as I noted in my article earlier .

Search and portal

Revenue growth in the search and portal segment was 45%, demonstrating an acceleration compared to Q2 2022 due to: 1) reduced competition due to the exit of foreign companies from the market 2) development of advertising products on the e-commerce platform. The company continues to increase its share in the Russian search market, following the results of the 3rd quarter, the market share was 62%. Also, the company's management noted that the growth in revenue is associated with the acceleration of business activity of large customers.

E-commerce, mobility and delivery

Turnover in the taxi segment showed an increase of 27% due to the growth in the number of users and the frequency of trips, which is caused by the departure of the company's competitors from the Russian market. The company continues to maintain a monopoly position in the Russian market of taxi services, which allows: 1) to increase prices for the end consumer 2) to reduce the commission of drivers. In the e-commerce segment, turnover growth was 73%.

Sale of assets

In Q3, Yandex sold its own news and content portals, such as Yandex.News and Yandex.Dzen, where users could read news and share their own articles with other users. Thus, the main domain of the search engine has changed from yandex.ru to ya.ru, which should have a negative impact on the Search and Portal segment in the future, since such a change may lead to a decrease in the number of users and, accordingly, a decrease in revenue from the advertising segment.

Business restructuring plans

Management plans to restructure the business, but does not give precise comments on how the company's Russian business will be divided. At the moment, we know that the parent company, which is registered in the Netherlands, will exit the shareholders of the Russian legal entity that owns all the main business units in Russia, such as search, taxi, e-commerce and food delivery.

Guidance

Due to geopolitical and economic uncertainty in the Russian market, the company has decided not to publish guidance for the following periods. In my opinion, this decision of the company looks expected and logical for investors.

Risks

Restructuring: the company plans to restructure the business, but the mechanism of this action is still unclear to investors, which carries significant risks

Macro: Decrease in the level of real incomes of the population in Russia, rising inflation, lower levels of business activity and consumer confidence may have a negative impact on the company's future cash flows

Geopolitics: The growth of geopolitical tensions does not contribute to the resumption of trading in the company's shares.

Conclusion

Despite the fact that Yandex continues to demonstrate strong operational and financial performance, I believe that the number of risks around the company only continues to increase. The search engine domain change and unclear prospects for restructuring have a negative impact on the investment community, and also make the future cash flows of the business less predictable. In my personal opinion, now is not the best time to buy stock in a company.

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