Yandex

Transcription

Yandex

FEBRUARY 20, 2015
RUSSIA > EQUITY RESEARCH > INTERNET
TARGET PRICE UPDATE
Yandex
Sergey Vasin
[email protected]
RUS
SIA
In from the storm
>
INTERN ET
EQ
YNDX US
Closing price, $
16.9
RES Target price, $
19.2
Upside
14%
Recommendation
NEUTRAL
Net debt, $ mln
178
EV, $ mln
5,537
52-week high, $
37.8
52-week low, $
14.9
Source: Bloomberg
Yandex share price performance vs. RTS
Index
YANDEX
JAN 15
DEC 14
NOV 14
SEP 14
OCT 14
JUL 14
110%
100%
90%
80%
70%
60%
50%
40%
30%
AUG 14
Earnings hit by a double whammy. At a time of slowing revenues, Yandex’s
EBITDA margin is affected by high operating leverage (70% of operating costs
are fixed). Moreover, office rental costs are rising on the weak ruble, as the
costs are in USD, while the salaries of some IT specialists should be raised to a
competitive level globally. We thus revised down EBITDA margins for 2015-19.
5,359
JUN 14
Robust 2014 results to be followed by a downswing in 2015. Although
Yandex managed to deliver a strong top line in 2014, its EBITDA faced some
pressure from rising USD costs. We are looking for a slowdown in the company’s
annual revenue growth from 29% in 2014 to 11% YoY in 2015. This compares to
our original estimate of 27% for 2015.
MCap, $ mln
APR 14
Weakness looks temporary. We expect the media advert market in Russia to
experience similar trends as in 2008-09, when the Russian economy also
experienced a downturn. At that time, a sharp recovery took place in 2010,
while this time around we are looking for a recovery of the market in 2016.
SELECTED STOCK DATA
MAY 14
Internet in better shape than other segments. Most of the traditional advert
segments (TV, radio, outdoor advertising, etc) are set to demonstrate a drop in
the range of 15-30% YoY in 2015. Meanwhile, internet advert is expected to
grow at 9% YoY due to the migration of advertisers toward cost-efficient
solutions offered by internet players. At the same time, text-based advertising
(Yandex’s core business) is expected to rise 15% YoY.
Source: Bloomberg, Gazprombank estimates
FEB 14
CH
MAR 14
We cut our target price for Yandex from $34.6 to $19.2 per share. In addition, we
EAR
changed our recommendation on the stock from overweight to NEUTRAL
Media market suffers from weak economy. Advertising markets are sensitive
to economic cycles. We expect a 3.2% YoY decline (our estimate) in Russia’s
real GDP in 2015 to translate into a 13% YoY drop in the media advert market.
TICKER
FEB 15
We reviewed our model and valuation of Yandex following the recent UIT
release of 4Q14 financials. We incorporated the effect from sharp Y
devaluation of the ruble, as well as a weak economic outlook for 2015.
RTS INDEX
Source: Bloomberg
Expect market share to drop. Yandex has been losing its search market share
since March 2014. Google started capturing the market from all players after a
few years of stable market breakdown. The key reason behind this trend is
Google’s dominance on mobile platforms – in Russia, about 86% of smartphones
are powered by Android. Yandex has very limited ability to compete with Google
and should thus see its market share erode from the current 59% to 56% by 2018.
Key financials, RUB mln
2013
2014
2015E
2016E
2017E
2018E
Revenues
39,502
50,767
56,497
64,889
77,474
100,159
EBITDA
17,367
21,052
17,875
20,747
26,656
40,017
EBITDA margin
44.0%
41.5%
31.6%
32.0%
34.4%
40.0%
Net income
13,474
17,020
10,821
12,271
16,267
25,666
EV/EBITDA, x
18.1
16.2
19.2
16.4
12.5
7.9
P/E, x
24.6
19.5
30.7
27.0
20.4
12.9
Source: company data, Gazprombank estimates
Research Department
1
Copyright © 2003-2015. Gazprombank
(Joint Stock Company)
FEBRUARY 20, 2015
Valuation multiples
Balance sheet statement, RUB mln
2014
2015E
2016E
2017E
P/E, x
19.5
30.7
27.0
20.4
Cash and equivalents
EV/EBITDA, x
16.2
19.2
16.4
12.5
Accounts receivable
6.7
6.1
5.2
4.3
0.0%
0.0%
0.0%
0.0%
-3.9%
0.3%
0.9%
2.3%
EV/Revenues, x
Dividend yield
FCF yield
2015E
2016E
2017E
50,767
56,497
64,889
77,474
-35,444
-43,142
-49,334
-56,628
incl. SG&A
-7,782
-12,774
-14,665
-16,865
DD&A
-4,484
-4,520
-5,191
-5,811
EBITDA
21,052
17,875
20,747
26,656
Operating profit
15,323
13,355
15,556
20,846
Financial income net
856
882
590
558
Pretax profit
22,475
14,238
16,146
21,404
Income tax
-5,455
-3,417
-3,875
-5,137
Net income
17,020
10,821
12,271
16,267
53.58
34.07
38.63
51.21
EPS
2015E
2016E
2017E
11,800
11,161
15,325
3,703
4,619
5,280
6,078
n/a
n/a
n/a
n/a
Total current assets
35,807
30,475
32,496
39,890
PP&E
17,107
25,017
32,803
40,163
Total assets
94,924
97,087
108,352
124,755
0
0
0
0
5,053
5,623
6,459
7,711
Short-term debt
2014
Operating costs
2014
17,645
Inventories
Income statement, RUB mln
Revenues
Accounts payable
Total current liabilities
9,796
10,313
11,825
14,331
Long-term debt
26,325
22,825
19,325
15,825
Total non-current liabilities
29,392
25,518
22,248
19,251
Total shareholders’ equity
55,736
61,255
74,279
91,174
Minority interest
0
0
0
0
94,924
97,087
108,352
124,755
2014
2015E
2016E
2017E
Operating cash flow
15,546
15,521
16,494
21,540
incl. changes of w/c
-1,731
180
-968
-537
Investing cash flow
-28,589
-14,566
-13,633
-13,876
Total liabilities and equity
Cash flow statement, RUB mln
Key margins
2014
2015E
2016E
2017E
incl. CAPEX
-7,615
-12,429
-12,978
-13,171
EBIT
30.2%
23.6%
24.0%
26.9%
Financing cash flow
-11,707
-6,800
-3,500
-3,500
EBITDA
41.5%
31.6%
32.0%
34.4%
Change in cash
-15,749
-5,845
-640
4,164
Net income
33.5%
19.2%
18.9%
21.0%
Free cash flow
-13,043
955
2,860
7,664
2014
2015E
2016E
2017E
26,325
22,825
19,325
15,825
8,680
11,025
8,164
500
Total debt/Equity, x
0.5
0.4
0.3
0.2
Net debt/EBITDA, x
0.4
0.6
0.4
0.0
Key leverage data, RUB mln
Total debt
Net debt
2
FEBRUARY 20, 2015
CONTENTS
4Q14 financials — good results, but the outlook raises concerns ...................................................... 4
Russia media advertising is on the edge, except online .......................................................................... 6
The market looks depressed now, and the outlook is even worse… ...................................................................................................... 6
… but advert budgets to bounce back…as they usually do .......................................................................................................................... 7
TV and other media are stepping down in front of internet ....................................................................................................................... 8
Text-based advert — main growth driver for the whole segment .......................................................................................................... 9
Video advertising — a rising star or supernova? .......................................................................................................................................... 10
Yandex — in from the storm .......................................................................................................................... 12
Mobile platforms create an issue… a rather big one .................................................................................................................................... 12
Online video — testing fertile soil ........................................................................................................................................................................ 15
Yandex Market — a grounded bird ...................................................................................................................................................................... 15
Changes in outlook ...................................................................................................................................................................................................... 15
Debt and share buybacks ................................................................................................................................ 18
Valuation ............................................................................................................................................................... 19
Summary .......................................................................................................................................................................................................................... 19
DCF valuation................................................................................................................................................................................................................. 19
Relative valuation ........................................................................................................................................................................................................ 22
3
FEBRUARY 20, 2015
4Q14 FINANCIALS — GOOD RESULTS, BUT THE
OUTLOOK RAISES CONCERNS
Yandex’s revenues in 4Q14 highlighted the good dynamic in development of key
areas, although the tough environment in Russia’s media advert market took a
heavy toll on display advertising. Notably, EBITDA margins came under pressure
due to USD-related costs. This pressure looks set to intensify in 2015. The
company also guided revenues only for 1Q15 as opposed to FY15, emphasising a
challenging year ahead.
Revenues grew 21% YoY to RUB 14.7 bln in 4Q14, matching our expectation, while
EBITDA rose 18% YoY to RUB 6.1 bln, a touch ahead of our RUB 5.9 bln forecast.
The EBITDA margin reached 41.4% vs. the previous year’s 42.6%. Adjusted for FX
gains, the net income of Russia’s largest internet company increased 13% YoY to
RUB 4.0 bln, slightly beneath our estimate of RUB 4.5 bln. We note, however, that net
income was adjusted for a RUB 4.7 bln FX gain in 4Q14, so the reported figure was
well above our forecast.
The company’s profitability has been declining since last year. The key reason for this
was the sharp rise in product development costs, by 62% YoY in 4Q14 to RUB 2.7 bln.
It appears that Yandex has been forced to raise salaries for its IT specialists in order to
match international levels in USD terms. The company also has office rental costs
denominated in dollars, meaning that the weak ruble in 4Q14 pushed down margins.
At the same time, Yandex seems to have improved its bargaining power with partners,
as Traffic Acquisition Costs (TAC) grew only 9% YoY to RUB 3.1 bln. This compares
with a 21% rise in total revenues.
Yandex 4Q14 and FY14 US GAAP results, RUB mln
Revenues
Adj. EBITDA
Adj. EBITDA margin
Adj. net Income
4Q14
4Q13
YoY
4Q14E
YoY
2014
2013
YoY
2014E
YoY
14,667
12,086
21.4%
14,710
21.7%
50,767
39,502
28.5%
50,810
28.6%
6,078
5,148
18.1%
5,946
15.5%
21,052
17,367
21.2%
20,920
20.5%
41.4%
42.6%
-1.2%
40.4%
-2.2%
41.5%
44.0%
-2.5%
41.2%
-2.8%
3,967
3,519
12.7%
4,511
28.2%
13,751
13,474
2.1%
13,501
0.2%
Revenue breakdown analysis
Context advertising revenues from Yandex’s own websites grew 24% YoY in 4Q14 to
RUB 9.9 bln, while those from partner websites increased 16% YoY to RUB 3.3 bln.
The growth in context advertising was underpinned by organic growth shown by a
number of advertisers, which reached 317,000, up 14% YoY.
At the same time, the average cost per click in 4Q14 increased 3% YoY. This marks a
slowdown vs. the 3Q14 CPC growth rate of 8% YoY.
Yandex revenues breakdown, RUB mln
Text based
4Q14
4Q13
YoY
4Q14E
YoY
2014
2013
YoY
2014E
YoY
13,235
10,836
22.1%
13,382
23.5%
46,638
35,469
31.5%
46,235
30.4%
Display
1,181
1,152
2.5%
1,190
3.3%
3,509
3,379
3.8%
4,055
20.0%
Others
251
98
156.1%
137
40.0%
620
654
-5.2%
520
-20.5%
14,667
12,086
21.4%
14,710
21.7%
50,767
39,502
28.5%
50,810
28.6%
Total
Overall, text-based advertising expanded 22% YoY to RUB 13.2 bln and accounted
for 90% of total revenues in 4Q14, thus emphasizing the core role of this type of
advertising for the company. It appears that the text-based advertising market is much
4
FEBRUARY 20, 2015
less sensitive to Russia’s economic slowdown, while display advertising is showing
very sluggish performance.
On the negative side, revenues from display advertising increased only 3% YoY to
RUB 1.2 bln, with own website display advertising down 2% YoY to RUB 997 mln. At
the same time, we note that display advertising from partner networks is still rising at
34% YoY to RUB 184 mln. Still, this figure is too small to become a material factor for
Yandex. The reason for the sharp growth is the recently arranged strategic
partnership with Google on Real Time Bidding systems. This partnership, in our view,
should provide another boost to display advertising. The 4Q14 revenue growth shows
a slowdown due to the tough economic environment. We note that Yandex’s revenues
surged 28% YoY in 3Q14, with text-based advert booming at a rate of 29% YoY.
We also note that Yandex’s other revenues, which mainly consist of taxi services, are
also rising sharply (+156% YoY to RUB 251 mln), compared with 84% YoY growth in
the segment in 3Q14. These contributions are very small at this point, however.
The company also provided revenue growth guidance for 1Q15 of 15% YoY,
compared with the 28.5% YoY increase seen in 2014. We believe this short-term
forecast (1Q instead of FY) underscores the likelihood of a challenging year ahead.
5
FEBRUARY 20, 2015
RUSSIA MEDIA ADVERTISING IS ON THE EDGE, EXCEPT
ONLINE
The market looks depressed now, and the outlook is even worse…
The Association of Communication Agencies of Russia (ACAR) recently published
preliminary data for 9M14. As these data reveal, the Russia media advert market grew
only 5% YoY to around RUB 242.5 bln. That was the slowest rate since 2009. The main
reason for such weak figures is the economic slowdown, which had already made its
appearance in 9M14, as advertising budgets are highly sensitive to economic factors.
Russian advertising market breakdown, 9M14 vs. 9M13, RUB bln
300
250
229.1
200
11.1
26.5
241.7
11.7
23.9
32.3
31.8
150
58.8
49.0
100
50
108.0
112.4
9M13
9M14
0
OTHER
RADIO
PRINT
OUTDOOR
INTERNET
TV
Source: ACAR,
TV advert continues to play a pivotal role, with the market totaling RUB 112.1-112.6 bln
(46.5% of the total) and rising 4% YoY.
Meanwhile, internet is rising sharply, with 20% growth YoY to around RUB 58-59.5 bln
acting as a key growth driver for the industry and already contributing 24% of the total.
Text-based advertising was the fastest-growing segment with 28% growth YoY in 9M14
to RUB 46.6 bln (78% of internet advert and 19% of the total). Despite rather strong
figures, text-based advertising is also slowing down, as in 9M13 the segment showed
about 36% growth YoY, decreasing to RUB 35.7 bln.
It is also worth noting, however, that display (banner) advertising showed marginal
growth of 2% YoY to RUB 12.9 bln, accounting for 22% of internet ads but only for 5%
of the total market.
Radio and outdoor ads were rather resilient, with 5% and 2% YoY growth, respectively,
while they are both losing market shares to internet advertising.
The printed press segment struggled most of all in 9M14, down 10% YoY to RUB 23.9 bln,
with magazines showing the biggest decline (-11% YoY to RUB 11.7 bln).
We expect that during 4Q14 all of the negative trends in media segments only got worse
due to an escalation of the economic slowdown over that period.
Overall in 2014, we expect the total market to grow only 1% YoY to RUB 332 bln, as
we expect most segments to show a drop in 4Q14 in the range of 4-30% YoY, with
the exception being text-based online advertising, which we expect to expand 20%
YoY in 4Q14.
6
FEBRUARY 20, 2015
In 2015, we expect outdoor and print advertising to be the major losers of advert
budgets in Russia (-30% YoY), contracting by RUB 27 bln and RUB 22 bln, respectively.
Meanwhile, we believe that TV, the largest media advert segment in Russia, should
experience about a 15% YoY drop in 2015 to RUB 134 bln, slipping back to levels seen
in 2011. Still, TV should remain the largest advert segment, accounting for 46% of the
total market.
Russia advert market YoY growth rate estimates by segment in
2014 and 2015, %
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
Russia advert market estimates, 2014 vs. 2015, RUB bln
15%
9%
2%
1%
-5%
-15%
-7%
350
332
300
17
32
250
39
200
82
100
-15%
-30%
2014E
OUTDOOR
-30%
PRINT
90
158
134
50
-25%
ONLINE
13
22
27
150
-20%
TV
290
0
RADIO
2014E
OTHERS
2015E
OTHERS
RADIO
Source: ZenithOptimedia, Gazprombank estimates
2015E
PRINT
OUTDOOR
ONLINE
TV
Source: ZenithOptimedia, Gazprombank estimates
We are only looking for online advert to see growth in 2015 to the tune of 9% YoY to
RUB 90 bln, being driven by text-based advertising. We expect advertisers to be looking
for the most flexible and efficient audience-targeting methods in 2015. Online advert
offers the best price/quality ratio in these terms. Thus, we expect advert budgets to
switch from more traditional methods to an internet-based model.
Overall, in 2015 we expect the total market to decline by 13% YoY to RUB 289.5 bln.
We note that the total market, excluding online advertising, should drop an estimated
20% YoY to RUB 200 bln.
… but advert budgets to bounce back…as they usually do
We expect the media advert market in Russia to experience similar trends as in 200809, when the Russian economy also went through a downturn.
In 2009, the overall media advert market dropped 27% YoY to RUB 186.4, with outdoor
and print advert sustaining the heaviest losses (-44% YoY). Meanwhile, TV advert lost
18% YoY and radio declined 30% YoY. As it was sharply on the rise at that time, online
advert showed 19% YoY growth in 2009 (compared to 38% in 2008 and 100% in 2007).
Following the crash of 2009, the advertising market in Russia experienced a recovery
already in 2010, when the overall market increased 17% YoY to RUB 218.6 bln. The
key driving factors were online (+51%), TV (+15%) and outdoor (+18%) advertising,
while the radio and print segments lagged behind (+12% and +7%, respectively). The
market managed to recover to the peak level of 2008 (RUB 257 bln) only in 2011. We
also expect the Russian media market to start recovering in 2016 following the crash
anticipated in 2015.
We should note, however, that in 2009, in our view, advertisers overreacted to the
upcoming crisis and cut their budgets excessively. Companies that refused to advertise
their services in 2009 often lost their market shares to those who continued advertising.
In 2015, we expect advertisers to behave more rationally and cut their budgets in a
slightly smoother manner than six years ago.
7
FEBRUARY 20, 2015
Russia advert market YoY growth rates by segment in 2009 and 2010, %
TV
60%
ONLINE
OUTDOOR
PRINT
RADIO
OTHERS
51%
41%
40%
19%
15%
20%
18%
12%
7%
0%
-20%
-18%
-19%
-30%
-40%
-44%
-44%
-60%
2009
2010
Source: ACAR
As of end 2008, the Russian media advertising market accounted for 0.62% of the
country’s GDP over the period, which we can compare to current levels seen in Canada
and Germany (among the Top 10 markets).
In 2009, advert spending in Russia dropped to 0.48% of GDP and despite some
recovery it has never regained the levels seen before 2008 (0.62-0.66%).
In 2014, Russia’s media advertising market is estimated to equal 0.47% of the country’s
GDP, which is still comparable to the levels seen in China and France (also among the
Top 10 markets) over the same period.
Russian media advertising market estimates, RUB bln
421
450
378
400
350
300
Media advertising market 2014E as % of GDP in Top 10
countries vs. Russia
263
257
250
186
200
298
328 332
219
0.52%
100
0.64%
0.62%
CANADA
0.47%
RUSSIA
2018E
2017E
2016E
2015E
2014E
2013
2012
ADVERT MARKET
0.74%
BRAZIL
GERMANY
0.37%
2011
0
0.79%
UK
0.42%
50
2010
0.81%
S.KOREA
0.47%
2009
0.83%
AUSTRALIA
0.57%
150
2008
0.93%
JAPAN
332
290
1.01%
USA
0.62%
FRANCE
0.45%
CHINA
0.44%
% OF GDP
0.0%
0.2%
Source: ACAR, ZenithOptimedia, Gazprombank estimates
0.4%
0.6%
0.8%
1.0%
1.2%
We are modeling the market in Russia to drop to 0.38% of GDP in 2015 or RUB 289.5 bln,
and recover to the level of 2014 (RUB 332 bln) by 2016. However, in terms of GDP
percentage we do not expect full recovery within the above investment horizon and are
only modeling to a level of 0.43% by 2018.
TV and other media are stepping down in front of internet
While the TV segment still accounts for the bulk of advertising revenues in Russia
(47% in 2014 vs. the peak of 52% in 2009), internet is the fastest-growing segment. In
8
FEBRUARY 20, 2015
2014, total internet advertising continued to rise robustly at an estimated 15% YoY to
RUB 82.5 bln, accounting for 25% of the total market. We note that in 2009 its share
stood at only 10% and in 2005 just 2%. Internet is grabbing market share from other
traditional segments, such as radio and printed press. The loss of share in the TV
segment was not crucial, however, until mid-2012, when internet penetration
exceeded the crucial 50% level and large internet companies became comparable
with major TV channels in terms of audience reach. The importance of internet media
became clear to advertisers in April 2012, when Yandex beat Russia’s major Russian
TV player (Channel One) in terms of audience, having reached 19.1 mln visits per day
vs. Channel One’s 18.2 mln. In 2013, Yandex’s revenues also exceeded those of
Channel One.
Russian media advertising market estimates, %
Internet advertising as % of total media advertising in select
countries, 2015E
100%
80%
70%
20%
10%
31%
RUSSIA
28%
USA
6%
48%
25%
GERMANY
10% 12% 16% 19% 22%
25% 31% 32% 33% 35%
40%
30%
32%
CHINA
46% 52% 51% 50% 48% 48% 47% 46% 45% 44% 42%
60%
50%
45%
UK
90%
25%
FRANCE
23%
SPAIN
39% 37% 34% 33%
30% 28%
23% 23% 23% 22%
5%
BRAZIL
2008 2009 2010 2011 2012 2013 2014E2015E2016E2017E2018E
INTERNET
11%
INDIA
0%
OTHERS
19%
ITALY
0%
TV
10%
AKAR, ZenithOptimedia, Gazprombank estimates
20%
30%
40%
50%
Source: Bloomberg, Reuters, Gazprombank estimates
Going forward, we expect internet advertising to capture as much as 35% of the total
media advertising market in Russia by 2018 at the expense of more traditional media —
TV, published press and radio.
We note that in terms of the proportion of total internet advertising, Russia is very
similar to the US and Chinese markets and we expect Russia to follow a similar trend
going forward.
Text-based advert — main growth driver for the whole segment
Due to the economic downturn in Russia, we revised down our estimates for the internet
advertising market from RUB 165.7 bln by 2018 to RUB 147.8, which should still
account for 35% of Russia’s total media market vs. the current 25%.
The internet advert market is heavily consolidated, with only three players — Yandex,
Mail.ru Group and Google — controlling about 97% of the market in revenue terms.
The main driver for the whole internet advert segment should remain text-based
advertising, in our view. This advert offers very flexible and focused advert campaigns
and is therefore attracting an increasingly large number of advertisers from both
traditional media (TV, press and outdoor) and display ads. We also anticipate an
increase in the share of large advertisers in Russia’s text-based advertising. As a result,
we are looking for RUB124.9 bln to be spent on text-based advertising (85% of the total)
in 2018, thus implying a CAGR of 19% over 2013-18.
9
FEBRUARY 20, 2015
Revised internet advertisement estimates, RUB bln
Internet advertisement breakdown estimates, RUB bln
180
166
160
142
140
120
103
100
80
72 72
82 87
148
127
121
160
147.8
140
126.6 22.9
120
105
104.7 19.4
100
90
71.7
80
56.3
60
60
40
40
20
20
0
0
2013
2014E
2015E
NEW ESTIMATES
2016E
2017E
2018E
41.8
17.8
6.6
11.2
26.8
8.4
18.4
17.7
38.4
16.9
15.0
20.1
17.9
15.3
26.5
82.5
89.5
51.6
64.8
74.5
87.9
107.2
124.9
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
OLD ESTIMATES
TEXT-BASED
DISPLAY
Source: ACAR, Gazprombank estimates
Notably, we anticipate a decline in the popularity of display (banner) advertising. Despite
some support coming from the recent introduction of Real-Time Bidding (real-time auctionbased pricing of banners) and the rising popularity of video ads (part of display
advertising), we expect deterioration of the display advertising market in 2014-17. By
2017, we see the total display market being worth RUB 19.4 bln vs. RUB 20.1 bln in 2013.
Video advertising — a rising star or supernova?
The online video market, which can also be called the OTT video services market, is
booming in Russia due to the switch of audience interests from traditional TV channels
to internet. According to J’son & Partners management consulting estimates, the total
online video market in Russia reached RUB 4.8 bln in 2014, having shown 50% growth
YoY. By end 2017, the market should reach RUB 11.4 bln, while the CAGR over the
period is estimated at 33%.
The core monetization model in Russia for online video services is video ads shown
prior to a video clip/movie. This model accounts for about 73% of the total market, while
the rest comes from subscription fees and video on demand services. Meanwhile, the
world average online video market is only 46% monetized with video ads.
Russia online video market estimates, RUB bln*
Russia online video advert estimates, RUB bln and % of online
display advertising
11.4
12
8.0
7.0
10
6
4.8
4.0
26%
3.0
1.0
29%
31%
2.5
2.0
2
3%
2%
4%
40%
30%
20%
22%
7%
10%
14%
0.0
0%
2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
0
2013
* - including VAT
50%
5.0
3.1
70%
60%
6.0
CAGR = 33%
8
4
7.1
2014E
ONLINE VIDEO ADVERT
2017E
Source: J’son and partners
% OF DISPLAY
Source: J’son and partners, Higher School of Economics, Gazprombank estimates
Materially important growth in Russia’s online advertising began in 2010, when the
market reached about RUB 230 mln and accounted for 3% of total online display ads
10
FEBRUARY 20, 2015
in Russia. The segment had been growing at a CAGR of 80% by 2014 and reached
RUB 2.5 bln (14% of display advertising) estimated by end 2014.
Online video ads appear to be a rising star in the internet advertising segment, which
might challenge traditional TV advert budgets to a larger extent than other display and
text-based ads have done. Yet, for the time being we prefer to model a rather
conservative scenario.
The underlying reasons for the phenomenon of sharp growth in the segment are the
following:

Internet penetration in Russia has exceeded the crucial 50% level and the internet
audience reach has become comparable to traditional TV.

A young, economically active and thus very lucrative audience is switching its free
time spent from traditional TV channels to internet. This, in turn, has prompted
some TV channels to refocus their efforts on rolling out online content offerings
(CTC Media).

Internet offers much much more interactive and easier-to-control contact with an
audience.
The future development of video advertising should be determined by the rising
popularity of smartphones and smart TVs. According to IVI (a leading online cinema
service in Russia), more than 60% of its movies are viewed on so-called second
screens (smartphones and tablets) as opposed to conventional PCs.
Overall, we expect the video advertising market in Russia to reach RUB 7.1 bln in 2018
(30% CAGR 2014-2018 in local currency) and become the main driver for the display ad
segment of the online advertising market in Russia. Video ads should contribute about
31% to the segment by 2018 vs. 14% in 2014E.
11
FEBRUARY 20, 2015
YANDEX — IN FROM THE STORM
Mobile platforms create an issue… a rather big one
Since March 2014 and until January 2015, Yandex has faced a moderate but rather
constant decline in its market share in terms of search enquires.
The company’s efficient search engine, which uses own and proprietary algorithms to
provide relevant results as well as high-quality localization of services, has been the main
reasons for Yandex’s longstanding leadership. But that seems to be changing now.
Although the quality of Yandex’s services remains high, we maintain that the primary
reason for the decline is the rising popularity of mobile data and mobile devices, which
are altering the way people go online.
According to TNS, only 36% of users use conventional PCs as their sole means of
internet access, while the remaining 74% use both PCs and all types of mobile devices
(smartphones, tablet PCs, etc).
Smartphone penetration in select countries, November 2014
80%
S.KOREA
70%
CHINA
68%
UK
58%
USA
53%
ITALY
50%
GERMANY
49%
FRANCE
46%
JAPAN
45%
RUSSIA
41%
POLAND
39%
TURKEY
29%
BRAZIL
15%
INDIA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Source: InternetWorldstats, ITU, Google
The current smartphone penetration rate in Russia is estimated at 45%, similar to
Poland but still below levels seen in developed markets. Taking into account the
“incremental love” of Russians for compact gadgets, we would expect smartphone
penetration in the country to reach levels comparable to the UK and the US before long.
Notably, about 61% of new mobile phone sales in Russia in 2014 were attributable to
smartphones, according to J’son & Partners.
Online advert migrating from PC to mobile
The popularity of mobile devices creates an environment conducive to the expansion of
mobile online advert as opposed to conventional PC-based online advert. This, in turn,
gives new players a chance to capture market share from the leaders.
According to Interactive Advertising Bureau (IAB), mobile gadgets commanded 17% of
global digital (online) ads as of 1H14. By 2017, according to eMarketer, mobile
12
FEBRUARY 20, 2015
advertising in the world should reach $62.8 bln, accounting for 36% of the digital
advertising market.
In Russia, mobile ad expansion is still in its inception, since, according to eMarketer
estimates, it accounted for only about 5.7% of total digital advert in 2014 vs. 3.1% a
year ago. J’son & Partners estimates that mobile ads will account for 16% of total online
advertising in Russia by 2018.
Google is winning out in mobile platform competition
Google’s Android OS currently commands leadership in Russia’s smartphone platform.
As of end 2014, about 86% of smartphones were equipped with this operating system.
This figure stands in stark contrast with the situation in 2010, when Nokia, with its
Symbian, dominated the market (72% share), while Android was just a starter with 11%.
Russia’s smartphone users by operating system in 2014E vs.
2010
100%
Russia’s internet users by browser, January 2015
4%
10%
90%
6.3%
80%
6.7%
70%
72%
60%
4.4%
30.8%
7.2%
50%
86%
40%
10.6%
30%
12%
5%
11%
20%
10%
0%
14.4%
2010
SYMBIAN
2014E
OTHERS
IOS
CHROME
YANDEX
ANDROID
ANDROID
FIREFOX
Source: Json and Partners Consulting,
19.6%
SAFARI
EXPLORER
OPERA
OTHERS
Source: Liveinternet
Google is winning out in the competition for means of internet access globally. On top of
its Android solution for mobile devices, the company introduced its own internet browser
Chrome around end 2008. The browser is the frontrunner in global competition and by
January 2015 already accounted for 51% of the market (according to StatCounter). We
note that before the introduction of Chrome, the market leader, Internet Explorer, was
used by 80% of internet users.
Russia faces trends similar to those in the rest of world, as internet browsing in the
country is heavily dominated by Google applications. About 31% of internet views in
January 2015 were routed through Google Chrome, while another 20% were executed
via mobile gadgets equipped with Android (Google). iOS-based Safari users come in
third, with 14%. Meanwhile Yandex’s in house browser holds only 7% of the market.
Google’s dominant position in internet browsing and mobile operating systems allows it
to secure its positions in search enquires and thus in text-based advert. The company
uses its search engine as a default option in all PC and mobile applications.
No country for other apps
Android is an open source platform and can be significantly adjusted to fit the needs of
mobile device vendors. However, under the terms of its licence agreement, Google
requires all vendors using the operating system in their mobile devices to have Google
apps and search engines pre-installed as default user options.
Alternative applications are not prohibited and can also be installed, but often only at the
user’s initiative. This is how Google secures its dominant position on the market, while
making it difficult for players like Yandex to fight for market share on mobile devices.
13
FEBRUARY 20, 2015
In order to address the market share issue, Yandex introduced its own internet browser
in October 2012. This browser had gained 7% of the Russian internet market by
January 2015. The bulk of user search enquires on the Yandex browser go through the
Yandex search engine.
In addition, Yandex reached an agreement to become a default search engine in the
Mozilla Firefox internet browser in Russia at the end of 2014. We note that Yandex had
already been a default search engine in Firefox from 2009 through 2012, before it
switched to Google. Two months after the new partnership agreement was signed, the
share of Yandex-powered search enquires on Firefox gained 3 pps and reached 75%.
Moreover, Yandex has been the default search engine in mobile browser Opera Mini in
Russia since 2008 (holding 3% of the market) and executes about 78% of search
enquires from this application.
In order to support its market position, Yandex aims to further enhance its leadership
position in search enquires on all mobile internet browsing platforms alternative to Android.
Moreover, Yandex is now considering a new promotion strategy via mobile retail chains
in order to boost the amount of installations of Yandex applications on Android-based
smartphones on the day of a purchase with the help of retailers on a commission basis.
On top of the above measures, Yandex has asked the Federal Anti-Monopoly Service to
force Google to unbundle Android from Google search and other applications. The aim
is to allow Yandex to agree with smartphone manufacturers on pre-installation of
Yandex apps. The move is warranted, in our view, although we doubt that it will lead to
quick success.
Despite all of the measures taken, we expect Yandex to continue losing its market share
in search enquires to Google. By December 2018, we model Yandex to command 56%
of search enquires vs. 59% in January 2015.
Runet search enquires market breakdown by search engine
70%
60.6%
60.5%
61.9%
59.3%
58.9%
32.1%
32.8%
6.5%
6.4%
3.0%
2.1%
1.9%
1.0%
DEC-13
DEC-14
JAN-15
DEC-18E
60%
56.0%
50%
39.0%
40%
30%
25.5%
26.4%
26.5%
7.5%
8.6%
8.6%
20%
10%
0%
6.4%
4.5%
4.0%
-10%
DEC-11
YANDEX
DEC-12
GOOGLE
MAIL.RU
OTHERS
Source: Liveinternet, Gazprombank estimates
Meanwhile, Google is estimated to have a 39% market share by 2018 vs. the current
33%. Google’s market gains should take place at the expense of all market players and
not just Yandex.
14
FEBRUARY 20, 2015
Online video — testing fertile soil
Yandex has tapped into all the prospects of the online video advert segment, as we
described above. The company is set to become an active player in a market that offers
a 33% CAGR over the next four years in 2015 after the launch of its online video service
based on recently purchased Kinopoisk in cooperation with a leading online-cinema
player. Yet, this is just the beginning and we do not expect the company to start
generating sizable revenues within the next few years. We do not even expect the
company to start disclosing the details of video advertising in its revenue breakdown, as
it might account for only 0.7% of Yandex’s total revenues by 2018.
Yandex Market — a grounded bird
We were never overly bullish on the Yandex.Market service and consider it as promising,
albeit only one of the company’s multiple business lines.
Following a reassessment of economic prospects and in anticipation of a severe drop in
personal income and consumption, we are decreasing our estimates for revenues from
Yandex.Market.
We expected revenues to grow at a CAGR of 49% over 2013-18 to 15% of Yandex’s total
revenues by 2018, but instead have cut our CAGR to 25%, with the share of revenues
dropping to 9%.
Yandex faced some difficulties in persuading internet shops to move to the Yandex
platform, while the cost-per-action (CPA) price still remained low at only 1% of revenues.
To remind, the initial plan was to raise the CPA price toward 7-9%.
We postpone an increase in the CPA price in our model from 2015 to 2017 and limit the
top price at 5%, which is expected to be reached by 2020 vs. 7% by 2017 in line with the
estimate given in our previous report. However, that might be considered a conservative
approach.
Changes in outlook
Revenues — slowing down, but only temporarily
Based on the revised market outlook we are changing our financial model for Yandex.
While we cut our revenue growth forecasts for 2015 from an originally estimated 27%
to 11% YoY, we are still confident about the viability of Yandex’s business model. We
expect to see the company’s revenues growth recover to a level of 15-29% in 2016-18
and to show 2013-18 CAGR of 20% vs. the originally estimated 27%. This is still well
ahead of the overall media advertising market, which is estimated to grow at a CAGR
of 5% over the same period.
Earnings hit with a double whammy
During a period of slowing revenues, Yandex’s EBITDA margin is affected by high
operating leverage (about 70% of operating costs are fixed). Moreover, Yandex’s office
rental cost is rising on the weak ruble, as the cost is USD-denominated. We estimate
that rental expenses (mainly the head office) equaled about 10% of Yandex’s total
revenues in 4Q14.
As of 4Q14, personnel costs were equivalent to 20% of Yandex’s revenues, whereas
product development personnel comprised 59% of these costs. Although salaries are
not explicitly denominated in USD, the company is forced to raise salaries for its topnotch IT specialists in order to match international levels in USD terms.
And while Yandex has a stock option program as a measure of non-monetary incentives
for top executives, we believe the company will be hard pressed to avoid raising salaries.
15
FEBRUARY 20, 2015
EBITDA margin estimates comparison, %
70%
60%
50%
41.5%
42.1%
43.6%
45.0%
46.0%
40%
41.5%
30%
40.0%
31.6%
32.0%
2015E
2016E
46.0%
43.7%
46.0%
46.0%
45.6%
46.0%
2020E
2021E
34.4%
20%
10%
0%
2014
2017E
OLD ESTIMATE
2018E
2019E
NEW ESTIMATE
In order to account for all of the new factors mentioned above, we revised down our
EBITDA margin estimate for 2015 from 42% to 30%. A recovery in margins is expected
on the back of higher revenues due to high operational leverage (a high proportion of
fixed costs). That said, we expect to see only a 40% EBITDA margin in 2018 vs, 46%
estimated earlier. However, our long-term EBITDA margin estimate (beyond 2020)
remains unchanged at 46%.
Capex set to rise in response to the soft ruble
Yandex has 100% of its capex denominated in USD, as the bulk of this amount is
related to foreign equipment for data centers. Due to weakness in the ruble, we raised
our cumulative capex program for Yandex over the 2014-18 period to RUB 60.9 bln
(17% of revenues) vs. RUB 54.8 bln (13%) estimated earlier.
16
FEBRUARY 20, 2015
Yandex main changes in financials, RUB bln
2013
2014E
2015E
2016E
2017E
2018E
2019E
Revenues
old estimate
39.5
50.8
64.6
81.5
106.0
130.5
154.3
% growth YoY
5.3%
28.6%
27.1%
26.3%
30.0%
23.1%
18.2%
new estimate
39.5
50.8
56.5
64.9
77.5
100.2
125.8
% growth YoY
5.3%
28.5%
11.3%
14.9%
19.4%
29.3%
25.6%
EBITDA
old estimate
% growth YoY
17.4
21.1
27.2
35.6
47.7
60.0
70.9
8.2%
21.5%
28.7%
31.0%
34.1%
25.8%
18.2%
new estimate
17.4
21.1
17.9
20.7
26.7
40.0
55.0
% growth YoY
8.2%
21.2%
-15.1%
16.1%
28.5%
50.1%
37.4%
old estimate
44.0%
41.5%
42.1%
43.6%
45.0%
46.0%
46.0%
new estimate
44.0%
41.5%
31.6%
32.0%
34.4%
40.0%
43.7%
13.5
14.2
18.0
23.8
32.4
41.1
49.0
% growth YoY
169.3%
5.2%
27.1%
31.9%
36.2%
27.0%
19.1%
new estimate
13.5
17.0
10.8
12.3
16.3
25.7
36.2
26.3%
-36.4%
13.4%
32.6%
57.8%
41.1%
EBITDA margin
Net income
old estimate
% growth YoY
Capex
old estimate
7.4
7.6
9.0
9.8
12.7
15.7
18.5
% of revenues
18.7%
15.0%
14.0%
12.0%
12.0%
12.0%
12.0%
new estimate
7.4
7.6
12.4
13.0
13.2
14.7
15.1
% of revenues
18.7%
15.0%
22.0%
20.0%
17.0%
14.7%
12.0%
Source: Company data, Gazprombank estimates
17
FEBRUARY 20, 2015
DEBT AND SHARE BUYBACKS
Yandex generated positive free cash flow of RUB 5.5 bln and held a net cash position of
RUB 25.97 bln as of end 4Q14.
The company has no bank loans, but in 2014 it issued $690 mln in 1.125% convertible
senior notes due in 2018. The bulk of the proceeds are currently located on long-term
bank deposits in USD. In 4Q14, Yandex bought back $100 mln in principal of this notes
for $85.6 mln, so as of end 4Q14 the remaining amount of Yandex convertible notes
issued was equal to $540 mln. To remind, the company bought back $50 mln of these
notes in 3Q14.
The company confirmed that as of end 4Q14 it had repurchased 0.98 mln shares as
part of its previously announced 3.0 mln share repurchase program. We would expect
the company to continue the practice of buybacks and to use the shares in stock option
programs for personnel. This should provide additional support to the company’s shares
in 2015, in our view. As of end 2014, Yandex held 12.39 mln class A shares (tradable
on NASDAQ) in treasury and has board approval to purchase another 2.02 mln from the
market. The buyback program has no time limits, however.
18
FEBRUARY 20, 2015
VALUATION
Summary
As was the case during our initiation of Yandex coverage, we used a series of
valuation methods for the company in order to derive a better-weighted target price.
We used a DCF model and international peer EV/EBITDA and P/E multiples, while
also performing a PEG-based valuation. None of these methods are perfectly suitable
for the sake of internet company valuations. DCF reflects a company’s long-term
growth potential but fails to avoid the risks inherent in long-term forecasts. The
international peer multiples method reflects market sentiment toward a stock better
than DCF, but still does not address company-specific issues. Although the PEG ratio
is widely used to value internet stocks, it also lacks company-specific issues and does
not provide a long-term view.
We pooled all of the abovementioned valuation methods and derived a target price for
Yandex based upon their weighted average.
We assigned a 50% weight to DCF, our favorite valuation method, as we prefer a longterm view on the company; 40% was equally distributed among EV/EBITDA and P/E;
while our PEG ratio valuation was given a 10% weight.
Overall, we derive an end-2015 target price for Yandex of $18.1-21.2 per share, while
the weighted-average target price is $19.2, implying 14% upside potential to the current
price. This compares with our previous target price of $34.6 per share. We therefore
change our recommendation on the stock from overweight to NEUTRAL.
Yandex valuation summary by valuation method, $ per share
21.5
21.18
300%
21.0
250%
20.5
20.0
200%
19.5
19.05
19.22
19.0
18.5
150%
18.06
100%
18.0
50%
17.5
17.0
100%
18.26
10%
20%
20%
16.5
50%
0%
PEG
PE
TARGET PRICE
DCF
WEIGHTED
AVERAGE
EV/EBITDA
WEIGHTS
Source: Gazprombank estimates
Details on the individual valuation methods are provided in a later section.
DCF valuation
Our favorite valuation methodology for Yandex is DCF. This method, in our view, makes
it possible to capture the company’s long-term potential in the Russian market, which is
not fully comparable to other emerging or developed markets. There are also a limited
number of international peers with a similar business model.
WACC estimates
One of the reasons for the downgrade in our target prices for Yandex was an increase
in our WACC estimate by 2.3 pps, mainly due to a higher risk-free rate and equity-risk
premium since our last valuations.
19
FEBRUARY 20, 2015
WACC calculation summary
NEW
OLD
Risk-free rate
10.1%
7.1%
Basic equity-risk premium
9.4%
9.0%
Adjusted beta
0.77
0.86
Cost of equity
17.2%
14.9%
Cost of debt
1.1%
1.1%
% equity
100%
100%
0%
0%
17.2%
14.9%
% debt
WACC
DCF model and valuation
Yandex DCF valuation model summary, RUB mln
2014
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
Revenues
50,767
56,497
64,889
77,474
100,159
125,846
151,058
177,081
203,643
234,189
269,318
% growth YoY
28.5%
11.3%
14.9%
19.4%
29.3%
25.6%
20.0%
17.2%
15.0%
15.0%
15.0%
EBIT
15,323
13,355
15,556
20,846
33,005
46,789
59,771
70,759
82,787
96,033
110,438
% growth YoY
19.4%
(12.8%)
16.5%
34.0%
58.3%
41.8%
27.7%
18.4%
17.0%
16.0%
15.0%
Less taxes
-5,455
-3,417
-3,875
-5,137
-8,133
-11,530
-14,729
-17,437
-20,401
-23,665
-27,215
Tax rate on EBIT
-36%
-26%
-25%
-25%
-25%
-25%
-25%
-25%
-25%
-25%
-25%
Depreciation and amortization
4,484
4,520
5,191
5,811
7,011
8,180
9,063
10,625
12,219
14,051
16,159
9%
8%
8%
8%
7%
7%
6%
6%
6%
6%
6%
(Increase)/decrease in NWC
-1,731
180
-968
-537
-901
-1,258
-1,511
1,771
2,036
2,342
2,693
% of revenues
-3.4%
0.3%
-1.5%
-0.7%
-0.9%
-1.0%
-1.0%
1.0%
1.0%
1.0%
1.0%
Capex
-7,615
-12,429
-12,978
-13,171
-14,723
-15,102
-15,106
-15,052
-15,273
-16,862
-18,852
% of revenues
-15%
-22%
-20%
-17%
-15%
-12%
-10%
-9%
-8%
-7%
-7%
Net free cash flow
5,006
2,209
2,926
7,812
16,258
27,079
37,489
50,666
61,368
71,900
83,224
% growth YoY
-3.3%
-55.9%
32.5%
167.0%
108.1%
66.6%
38.4%
35.1%
21.1%
17.2%
15.7%
% of revenues
Source: Company data, Gazprombank estimates
20
FEBRUARY 20, 2015
DCF valuation summary, RUB mln
WACC
17.2%
Terminal growth rate
5.0%
Discounted cash flow
131,471
+Discounted terminal value
170,758
Estimated enterprise value
302,228
- Net debt (2015E)
-19,668
Estimated equity value
321,896
Number of shares issued, mln
318
Fair value per share, RUB
1,013
Exchange rate, RUB/$
53.2
Fair value per share, $
19.05
Current share price, $
16.85
Upside potential, %
13%
By means of DCF, we valued Yandex at RUB 1,013 per share. In order to assign dollarbased target prices, we used our estimated average RUB/USD rate for 2015 of 53.2,
which we derived under the base scenario outlined in our 2015 Equity Strategy report.
Our new DCF-based target price (as of end 2015) for Yandex is estimated at $19.05 per
share, which implies 13% upside potential for the stock from current levels. Our previous
DCF target price (as of end 2014) was $34.6 per share. Ruble devaluation and the
reduction in our overall media advert market outlook were the key reasons for the cut.
We note that DCF valuation is very sensitive to WACC and USD/RUB rate assumptions.
A less conservative approach might have used a lower WACC of 14.0%. On the other
hand, one can argue that our ruble exchange rate is overly optimistic and it would be
better to use a higher rate of 65. Based on these assumptions, Yandex’s DCF-based
target price could end up at a level of $22.85 per share, offering 36% upside.
We prefer to be conservative in our DCF approach, but leave it to the investor to decide
on the appropriate assumption. For the sake of convenience, we provide a valuation
sensitivity table below.
DCF valuation sensitivity table, $ per share
USD/RUB RATE
WACC
13.0%
14.0%
15.0%
16.0%
17.2%
18.0%
19.0%
20.0%
21.0%
35
49.00
42.43
37.23
33.03
28.95
26.69
24.25
22.16
20.37
45
38.11
33.00
28.96
25.69
22.52
20.76
18.86
17.24
15.84
53
32.24
27.91
24.49
21.73
19.05
17.56
15.95
14.58
13.40
65
26.38
22.85
20.05
17.78
15.59
14.37
13.06
11.93
10.97
75
22.87
19.80
17.37
15.41
13.51
12.45
11.32
10.34
9.50
Source: Gazprombank estimates
21
FEBRUARY 20, 2015
Relative valuation
Yandex peer group multiples comparison
EV/EBITDA (X)
P/E (X)
PEG*
MCAP,
$ MLN
2014E
2015E
2016E
2014E
2015E
2016E
14-17E
Google
368,257
11.4
10.3
8.8
20.8
18.7
15.9
1.3
Baidu
72,655
28.5
23.3
16.5
31.8
26.0
19.4
1.1
Yahoo!
41,352
29.8
34.6
33.7
26.0
50.5
48.4
N/A
Yahoo! Japan
20,936
7.8
8.9
8.4
17.0
19.0
18.4
N/A
Sohu.com
2,059
International average
N/A
17.5
7.1
N/A
N/A
26.7
0.6
19.4
18.9
14.9
23.9
28.5
25.8
1.0
Yandex
5,359
16.2
19.2
16.4
19.5
30.7
27.0
1.0
Mail.ru
4,048
24.7
23.6
19.9
20.2
22.0
18.7
2.3
20.4
21.3
18.1
19.8
26.2
22.7
1.7
Russian average
* Yandex net income adjusted for FX gains/ losses
Among listed companies, Mail.ru Group (Mail.ru), the second-largest internet holding in
Russia after Yandex, is the company’s only real peer in Russia. These two stocks are
not comparable, however, as Yandex is essentially a pure play on the rapidly growing
text-based advertising market, whereas Mail.ru is more of a diversified and slowergrowing asset. Moreover, Yandex offers lower EBITDA margins in a range of 42-44%
(prior to 2015) vs. 52% at Mail.ru.
Yandex trades at lower EV/EBITDA but higher P/E multiples than Mail.ru. The difference
can be partially attributed to the difference in growth rates.
International comparison
For comparison purposes, there are also only a limited number of international market
peers that operate in both emerging and developed markets and have similar business
models.
We performed a valuation based on an international comparison of 2015E EV/EBITDA
and P/E ratios, as they reflect market sentiment and growth expectations from internet
stocks and can be used to value Yandex regardless of the difference in the size and
markets in which they operate.
Yandex valuation based on international EV/EBITDA, RUB mln
International EV/EBITDA, 2014E
18.9
Yandex EBITDA, 2015E
17,875
Estimated EV
338,320
Net debt, 2015E
-19,668
357,988
Number of shares, mln
317.6
1,127
Fair value per share, USD
21.18
% upside/downside
26%
Based on the international media EV/EBITDA multiple of 18.9x estimated for 2015
earnings, we would argue that Yandex should be valued at $21.2 per share by end
2015, implying upside potential of 26%.
On the other hand, the same 2015 international P/E ratio of 28.5x would indicate a
valuation for Yandex of only $18.26 per share, or 8% above its current market price.
22
FEBRUARY 20, 2015
Yandex valuation based on international P/E, RUB mln
International P/E, 2014E
28.5
Yandex net income, 2015E
10,821
308,599
317.6
972
18.26
% upside/downside
8%
The difference in valuations derived from EV/EBITDA and P/E ratios stems mainly from
the difference in debt levels among the companies. To remind, Yandex enjoys a net
cash position that is beneficial relative to its leveraged international peers.
PEG ratio-based valuation
We estimated PEG ratios for our select international peers based on Bloomberg
consensus earnings estimates.
We would argue that Yandex should trade at an average level to the PEG ratios of its
International peers and thus deserves upside.
Yandex valuation based on PEG ratio, RUB mln
International PEG
1.3
Estimated Yandex net income CAGR (‘14-17)*
21%
Estimated P/E, 2015
28.2
Yandex net income, 2015
10,821
305,252
317.6
961
18.06
% upside/downside
7%
* net income adjusted for FX gains/ losses
Based on a PEG ratio of 1.3x (blended Russian and International peers), we estimate
that Yandex might trade at 28.2x the 2015E P/E ratio, which implies a valuation of
$18.06 per share by end 2015. The implied upside potential of 7%. The reason for
such a low valuation is the depressed earnings of Yandex modeled for 2015 due to
the weak ruble.
As noted above, we pooled and weighted all of the derived valuations of Yandex and
came up with an end-2015 target price for Yandex of $19.22 per share, which implies
14% downside to the current price. This compares with our previous target price of
$34.6 per share (end-2014). We therefore change our recommendation to the stock
from Overweight to NEUTRAL.
23
HQ: 16/1 Nametkina St., Moscow 117420, Russia. Office: 7 Koroviy val St.
Research Department
+7 (495) 983 18 00
EQUITY SALES
FIXED INCOME SALES
+7 (495) 988 23 75
+7 (495) 983 18 80
EQUITY TRADING
FIXED INCOME TRADING
+7 (495) 988 24 10
+7 (499) 271 91 04
Copyright © 2003-2015. Gazprombank (Joint Stock Company). All rights reserved
This report has been prepared by the analysts of Gazprombank (Joint Stock Company) (hereinafter — Gazprombank) and is based on information obtained from public sources believed to be reliable, but is not guaranteed as necessarily being accurate.
With the exception of information directly pertaining to Gazprombank, the latter shall not be liable for the accuracy or completeness of any information shown herein. All opinions and judgments herein represent solely analysts’ personal opinion regarding the
events and situations described and analyzed in this report. They should not be regarded as Gazprombank’s position and are subject to change without notice, also in connection with new corporate or market events that may transpire. Gazprombank shall
be under no obligation to update, amend this report or otherwise notify anyone of any such changes. The financial instruments mentioned herein may be unsuitable for certain categories of investors. This report should not be the only basis used when
adopting an investment decision. Investors should make investment decisions at their own discretion, inviting independent consultants, if necessary, for their specific interests and objectives. The authors shall not be liable for any actions resulting from the
use of this report. Any information contained herein or in the appendices hereto shall not to be construed as a solicitation or an offer to buy or sell any securities or advertisement, unless otherwise expressly stated herein or in the appendices hereto.
Gazprombank should in no way be viewed as soliciting, facilitating, brokering or causing any persons to invest in any instrument or otherwise engage in transactions that may be prohibited to those persons under applicable laws and regulations. Investors
should independently evaluate whether any investment transactions undertaken after reviewing Gazprombank research materials are permitted under any applicable economic sanctions laws and regulations or other laws applicable to their investing
activities.

Yandex

Transcription

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