Bearish Wagers on Yandex Climb After 2013 Stock Advance

Wagers against Yandex NV (YNDX), Russia’s biggest Internet company, rose to a four-month high on concern it’s losing market share following a two-fold surge last year.

Short interest on Yandex climbed to 2 percent of shares outstanding Jan. 3, the highest since September, according to data compiled by Bloomberg and Markit, a London-based research firm. The stock rose less than 0.1 percent in New York yesterday. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. slipped 1.2 percent, led by OAO Rostelecom. (ROSYY) The Russian stock market is closed today for the Orthodox Christmas holiday.

The stock reached a record on Dec. 31 as growth in Russia’s retail sales beat forecasts, indicating a robust market for Internet advertising. Yandex’s share of the online search market dropped for a second week to 61.1 percent as of Jan. 5, the lowest level in a year, data compiled by researcher LiveInternet in Moscow show. The company will report the slowest revenue growth on record in 2014, according to the average estimate of 12 analysts surveyed by Bloomberg.

“Some people are concerned a drop in the weekly search share would translate into a decline in the monthly share,” said Konstantin Belov, an analyst at UralSib Financial Corp. in Moscow who cut his rating on Yandex to hold last month, ending two years in which he recommended buying. “Search share is a key indicator for Yandex. It means revenue to the company.”

Belov has a share-price projection of $37, compared with the $42.21 average of 22 estimates, data compiled by Bloomberg show. While 60 percent of the 25 analysts covering Yandex recommend buying the stock, it’s the lowest level since June 2012, the data show.

Yandex’s Valuation

Ochir Mandzhikov, a spokesman for Yandex in Moscow, didn’t reply to an e-mail sent after normal business hours yesterday, seeking a comment about the drop in the weekly search share.

The rally in Yandex sent its valuation to 30.3 times estimated earnings, above the average of 25.9 since 2011, according to data compiled by Bloomberg. That compares with a 6.72 multiple for the Bloomberg Russia-US gauge.

A short sale is one in which stock is borrowed and then sold, with the expectation of profit by repurchasing the shares at a lower price to be returned to the lender.

“It makes sense that companies that have appreciated so much are seeing short interest increase,” Boris Vilidnitsky, an analyst at Barclays Plc in London who has the equivalent of a buy rating for Yandex, wrote in an e-mail yesterday. The market share is “no real concern” for Yandex, he wrote.

Yandex, whose share of the Russian market is twice that of Google Inc., generates almost all of its revenue in Russia. Its search share was unchanged at 61.9 percent in December from a month earlier, compared with 26.5 percent for Google and 8.6 percent for Mail.ru Group Ltd. (MAIL), LiveInternet data show.

Retail Sales

While the 4.5 percent growth in Russian retail sales in November was lower than 16.5 percent six years earlier, it topped a 3.3 percent median forecast of 17 economists in a Bloomberg survey. Yandex’s third-quarter revenue exceeded estimates, helped by online advertising after the company extended its text-based ad service to Mail.ru.

If Yandex decides to spend at last part of its cash with dividends or a new buyback, the stock will gain, UralSib’s Belov said. Yandex has $982 million in cash and is yet to decide on how to use it, Chief Financial Officer Alexander Shulgin said on Oct. 23 conference call. The company has purchased about half of the 12 million shares in a buyback program announced in March, he said on the call.

Yandex advanced for a second day to $42.91 yesterday.

The Bloomberg Russia-US slipped to 98.68 as phone company Rostelecom slid 2.2 percent to $19.61. The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, fell 1.4 percent to $27.37, the lowest level since Sept. 6. The RTS Volatility Index, which measures expected swings in the index futures, sank 3.9 percent to 20.12, while RTS index futures expiring in March dropped less than 0.1 percent to 138,470 in U.S. hours.

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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