Yandex’s Google Premium Shrinks on GDP: Russia Overnight

Yandex NV (YNDX), Russia’s biggest Internet company, fell in New York, narrowing its premium to Google Inc. on concern the nation’s economic slowdown will reduce sales.

Shares of Yandex dropped 0.5 percent to $40.79 yesterday. The decline sent valuations to 36 times estimated earnings, or 53 percent above Google’s multiple, shrinking the widest gap in 17 months reached on Oct. 10. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. advanced 0.3 percent to 104.81, led by OAO Rostelecom. RTS stock-index futures fell 0.2 percent to 148,660 in U.S. hours.

Russia’s $2 trillion economy, hobbled by weaker global demand for its exports of oil and metals, is growing at the slowest pace since a 2009 contraction. Yandex, whose market share in Russia is twice that of Google’s, generates the bulk of its sales from text-based advertising. While the Hague-based company said yesterday that third-quarter revenue climbed 40 percent, analysts project the weakest annual gain on record, according to the average of 16 estimates in a Bloomberg survey.

“The market is showing some concerns over Russian economic growth and since Yandex is a Russian company, it’s not immune from economic slowdown,” Ivan Vasilevskiy, an analyst at Finam Investment Co., said by phone from Moscow yesterday. He has a hold recommendation on the shares. “If car dealers feel the pain, it’s only a matter of time when Yandex will feel it, and it won’t take too long.”

Photographer: Andrey Rudakov/Bloomberg

Employees work at their desks in the Yandex NV company headquarters in Moscow. Yandex, whose market share in Russia is twice that of Google’s, generates the bulk of its sales from text-based advertising. Close

Employees work at their desks in the Yandex NV company headquarters in Moscow. Yandex,... Read More

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Photographer: Andrey Rudakov/Bloomberg

Employees work at their desks in the Yandex NV company headquarters in Moscow. Yandex, whose market share in Russia is twice that of Google’s, generates the bulk of its sales from text-based advertising.

Ad Deal

Yandex plunged as much as 9 percent yesterday after an advertising agreement with Mail.ru Group Ltd. (MAIL) diluted profitability. 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.

Russian investment and real disposable incomes unexpectedly fell in September and consumer spending slowed, adding to signs the economic recovery is failing to gain momentum. Automakers sold 2 million vehicles in the first nine months of 2013, 7 percent fewer than in the same period a year earlier, the Association of European Businesses in Russia said Oct. 8. It was the seventh straight monthly decline.

“Yandex doesn’t seem to have any significant catalyst to fuel price gains in the next one or two quarters,” Boris Vilidnitsky, an analyst at Barclays Plc in London who has the equivalent of a buy rating for Yandex, said by phone yesterday. “Longer term, Yandex is a very strong story and a great buy. It has sustainable competitive advantage over Google in Russia.”

Yandex’s Cash

While Yandex isn’t insulated from Russia’s economy, it hasn’t been negatively affected by the slowdown given its “strong” position in the online advertising market, Chief Executive Officer Arkady Volozh said on a conference call yesterday. The segment will increase an average 26 percent annually in Russia from 2013 to 2015, Yandex said in a June presentation citing ZenithOptimedia data.

Yandex has $982 million in cash and is yet to decide on how to use it, Chief Financial Officer Alexander Shulgin said on the conference call yesterday. The company has purchased about half of the 12 million shares in a buyback program announced in March. JPMorgan Chase & Co. reiterated its buy recommendation, increasing its share-price estimate by 11 percent to $50, according to an e-mailed report yesterday.

“All eyes will be on a possible announcement of plans for the use of Yandex cash cushion,” JPMorgan’s analysts said in the report.

Moscow-traded futures on Yandex stock expiring in December rallied 3.4 percent to $40.60 in U.S. hours yesterday.

The Bloomberg Russia-US gauge extended this year’s gain to 5.5 percent. Rostelecom, Russia’s state-run telecommunications operator, rallied 4.8 percent to a three-month high of $21.04.

The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, was unchanged at $29.53. The RTS Volatility Index, which measures expected swings in the index futures, advanced 0.4 percent to 21.28 in U.S. hours.

United Co. Rusal (486), a Moscow-based aluminum producer, dropped 1.3 percent to HK$2.37 in Hong Kong trading as of 10:33 a.m. local time. The MSCI Asia Pacific Index declined 0.6 percent.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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