Yandex Shares Decline After Mail.ru Accord Dilutes Margins

Yandex NV (YNDX), Russia’s largest Web-search engine, fell the most in six months in New York trading after an advertising agreement with Mail.ru Group Ltd. (MAIL) diluted profitability even as the company boosted sales.

Yandex’s margin on adjusted earnings before interest, taxes, depreciation and amortization narrowed to 43 percent in the third quarter from 47 percent a year earlier, the company said today in a statement. Sales gained 40 percent to 10.2 billion rubles ($322 million), beating the average analyst estimate of 9.9 billion rubles compiled by Bloomberg.

Competitor Mail.ru agreed in July to incorporate Yandex’s advertising tools into its searches, on profit-sharing terms. “As expected, this agreement helped boost Yandex’s revenue, while significant dilution of Ebitda margin was a negative surprise,” Alexander Vengranovich, an analyst at Moscow-based Otkritie Capital, said by phone.

Yandex fell as much as 9 percent, the biggest drop since April 15, and was down 3.1 percent at $39.72 at 11:56 a.m. in New York.

The accord with Mail.ru will probably trim Yandex’s full-year Ebitda margin by 1 percentage point, Chief Financial Officer Alexander Shulgin said on a conference call today.

“The decline in margins on a year-over-year basis was the result of the inclusion of Mail.ru and more linear advertisement spend in 2013 compared to 2012 levels,” Shulgin said.

Yandex, one of whose co-founders died in July, has risen about 85 percent this year thanks to online-ads growth. The company is also expanding to provide services to online stores and Internet cinemas after buying Kinopoisk, a Russian clone of the IMDB movie database, earlier this month.

Yandex, whose market share in Russia is twice that of Google Inc.’s (GOOG), generates the bulk of its sales from text-based advertising.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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