Barclays Touts Yandex After Slump as Ads to Beat SlowdownHalia Pavliva
Yandex NV and Mail.ru Group Ltd. will rebound from their cheapest ever valuations as Russian Internet advertising weathers the nation’s economic slowdown, according to Barclays Plc.
Yandex, owner of Russia’s most-used search engine, tumbled 11 percent in New York last week to trade at 18 times estimated earnings, down from a valuation of as much as 53 in 2011, data compiled by Bloomberg show. Mail.ru, which operates Russian e-mail, social networking and games websites, dropped 6.4 percent in London to a multiple of 15.8, a record low.
The Internet companies slumped as Russia cut its 2013 growth forecast to 2.4 percent and Ksenia Yudaeva, President Vladimir Putin’s representative to the Group of 20 nations, said the energy-driven economy is probably already in recession. Association of Communication Agencies of Russia data shows web advertising grew 8.5 percent in 2009, when Russia’s economy shrank 7.8 percent amid a 78 percent tumble in oil prices.
“It’s a very good time to buy Yandex and Mail, it’s probably the best entry point for the next two to three years,” Boris Vilidnitsky, an analyst at Barclays in London who rates both stocks the equivalent of buy, said by phone April 19. “The market is overreacting as people fear slower economic growth in Russia would lead to reduced advertising spending. In Russia, Internet advertising increases even when the economy falls.”
Yandex, based in the Hague, retreated 2.4 percent April 19 to an eight-month low of $20.10 in New York, while Moscow-based Mail.ru rallied for the first time in six days, adding 0.5 percent today in London to $25.88.
Barclays is projecting a 76 percent jump in Yandex shares by March 22, and a 69 percent rally for Mail.ru, according to Vilidnitsky’s price targets based on April 19 closing levels.
Mail.ru expects companies in Russia will further increase spending for online ads, favoring them over offline advertising, Matthew Hammond, the company’s managing director, said on a conference call with investors Feb. 26, according to the transcript.
The Bloomberg Russia-US gauge, which tracks 14 of the most-traded Russian stocks in New York, fell for the sixth week last week, capping its longest stretch of declines since June.
Internet advertising in Russia remained the fastest growing segment of the market in 2012, according to the Association of Communication Agencies of Russia, known as AKAR. Web advertising grew 35 percent to 56.3 billion rubles ($1.8 billion) last year, after gaining 56 percent in 2011 and 40 percent in 2010, the data show.
The Russian advertising market shrank 27 percent to 267 billion rubles in 2009 as the economy contracted, while online ads increased, AKAR data show. The government cut its 2013 growth forecast from 3.6 percent as demand for commodities, which accounted for more than 80 percent of Russian exports revenue in 2011, decreases and prices fall. Commodities are down 6 percent this year.
Vilidnitsky said he prefers Yandex over Mail.ru because it gets a bigger portion of its revenue from online advertising. Yandex got at least 84 percent of revenue every quarter since 2010 from text-based advertising, according to data compiled by Bloomberg. Mail.ru got 35 percent of its 2012 revenue from the segment, while 22 percent came from selling games and 32 percent from social networks, he said.
“It’s a good time to buy the stock at these levels,” Maria Shipovskikh, an analyst at Infina Investment Co., who raised Yandex to a buy this month, said by phone from Moscow April 16. “A slowdown in advertising spending won’t happen immediately and Internet advertising will be least affected.”