A month has gone by since the last earnings report for Yandex (YNDX - Free Report) . Shares have added about 5.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Yandex's Q3 Earnings Miss, Revenues Top Estimates
Yandex reported third-quarter 2018 adjusted earnings of 28 cents (RUB 15.25) per share missing the Zacks Consensus Estimate by 2 cents. However, it surged significantly from the year-ago quarter’s figure of RUB 2.72 per share.
Revenues came in $496.6 million (RUB 32.6 billion), beating the Zacks Consensus Estimate of $468 million. The figure exhibited year-over-year growth of 39% in ruble terms.
The top line was driven by strong segmental performance of especially Taxi, Classifieds, Media Services and Experiments. Further, the company’s strengthening position in the search market and rising online advertisement revenues remained positive throughout the quarter under review.
Additionally, the company witnessed growth of 13% in its paid clicks during the reported quarter.
However, the deconsolidation effect of Yandex.Market remained an overhang throughout the third quarter. Excluding this impact, the revenues would have reflected growth of 44% on a year-over-year basis.
Total revenues of Yandex can be categorized into two groups: online advertising revenues and other revenues.
The total online advertising revenues came in RUB 25.9 billion (79.6% of total revenues), exhibiting growth of 18.3% on a year-over-year basis.
This was primarily driven by robust performance of Yandex properties which accounted for 77% of the total advertising revenues and exhibited year-over-year growth of 22.1%. Further, Advertising network revenues contributed 23% to the advertising revenues and grew 7%.
Excluding deconsolidation effect of Yandex.Market, the online advertising revenues would have grown 24%.
Other revenues came in RUB 6.6 billion (20.4% of total revenues), soaring 327% from the prior-year quarter. This can be attributed to the strong performance of Yandex.Taxi and Yandex.Drive.
Segments in Detail
Search and Portal: This segment remains the company’s key growth driver. Yandex generated RUB 26.7 billion revenues (81.9% of total revenues), up 26% year over year. This can primarily be attributed to the company’s increasing share in the Russian search market which reached 55.9% in the reported quarter and expanded 100 basis points (bps) from the year-ago quarter. Both the desktop and mobile search reached 66.9% and 27.5%, expanding 50 bps and 490 bps year over year, respectively. Notably, mobile search played a significant role in driving the top line within this segment. The company’s search share on Android and iOS came in 49.1% and 40.7%, respectively. Mobile traffic accounted for 48.7% of the total search traffic in this quarter.
Taxi: Yandex generated RUB 5.1 billion revenues (15.7% of revenues), increasing from $1.2 billion in the year-ago quarter. Impressive year-over-year growth was driven by increasing number of rides which soared 131% from the prior-year quarter.
Classifieds: Yandex generated revenues of RUB 988 million (3% of revenues) from this segment, advancing 80.3% year over year. This was driven by improving dealership business under auto.ru division of the company. Moreover, listing fees and VAS contributed well to top-line growth within this segment.
Media Services: This segment generated revenues of RUB 414 million (1.3% of revenues), up 43% from the year-ago quarter. This came on the back of expanding global footprint of Yandex.Music content library of KinoPoisk.
Experiments: This segment yielded RUB 706 million revenues (2.2% of total revenues), up from $92 billion in the prior-year quarter. This was driven by improved performance of the company’s Cloud and Zen units. Further, Yandex.Drive contributed well in the reported quarter.
In third-quarter 2018, adjusted net income margin was 18.7%, expanding 860 bps from the year-ago quarter.
Per the company, its operating margin came in 18.1% in the third quarter, up from 7.9% in the year-ago quarter. Further, Adjusted EBITDA margin was 32.9%, expanding 860 bps year over year. This can primarily be attributed to favorable currency change.
Operating expenses as a percentage of revenue was 81.9%, declining from 92.1% in the year-ago quarter.
The company’s total traffic acquisition cost (TAC) came in RUB 5.3 billion, surging 20% on a year-over-year basis. This was due to increase in TAC related to distribution partners and partner advertising network.
Balance Sheet & Cash Flows
As of Sep 30, 2018, cash and cash equivalents were $753 million, up from $572.5 million as of Jun 30, 2018.
Term deposits were $672 million, up from $958 million in the previous quarter.
For the third quarter, cash flow from operations was $115.8 million which declined from the previous-quarter figure of $191.4 million.
Additionally, Yandex repurchased 4.5 million shares worth $141 million during the reported quarter.
For 2018, Yandex improved its outlook for total revenues. The ruble-based total revenues are expected to grow in the range of 35-38% from 2017, which was previously in the band of 30-35%.
The company anticipates ruble-based revenue from Search and Portal segment to grow in the range of 21-23% from 2017.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
Currently, Yandex has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Yandex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.