Preliminary Thoughts on Yandex (as a Long)

Yandex NV is Russia’s largest search engine company. Given recent market share losses to Google, as well as it being a Russian stock, it is down -54% in the last 12 months. My preliminary take: the stock’s current price/valuation does not offer sufficient compensation for the risks I see. Specifically:

What I don’t like:

  • The stock is down -55%, yet doesn’t look all that cheap (e.g. compare against Google – YNDX trades at 5.5x revenue versus Google’s 6.2x revenue) given the various risk factors.
  • High risk of being a ‘dead money’ stock, or worse, on its way to becoming a value trap
  • Russia risk – The known unknowns and unknown unknowns – from currency, to confiscation, to who knows what risk?
  • Market share has declined in recent years, even as Google market share has risen.

What I like:

    • Appears to be a dominant search engine, despite recent market share losses
    • The google anti-trust legal situation looks interesting
    • Management appears to be good/excellent
    • The business appears to be good/excellent

Other comments:

Russia is out of favor with investors for a variety of reasons, yet Yandex’s valuation does not reflect that to me… the decline in share price reflects that, but down is not cheap… nor is down equal to a buy. Also, the stock does not seem to be discounting for this google risk (though the legal actions yandex has taken is a bullish upside offset). So you have a company with a very negative macro backdrop and some anti-growth idiosyncratic risk factors… so why pay google-like multiples? Yes, it’s a smaller company, but see google’s recent growth.

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