Yandex (YNDX) Q2 Earnings Beat Estimates, Revenues Miss

Yandex N.V. YNDX reported second-quarter 2020 adjusted earnings of 9 centsper share, beating the Zacks Consensus Estimate by 80%. However, the figure was down 66.6% year over year from 27 cents per share.

Revenues of $591.9 million (RUB 41.4 billion) lagged the Zacks Consensus Estimate of $594.7million. The figure remained flat on a year-over-year basis in ruble terms.

Sluggishness in the company’s advertising and ride-hailing businesses owing to coronavirus-led disruptions were concerns during the reported quarter. Further, weak performance of Search, Classifieds, and Other Bets and Experiments segments was a headwind.

The company’s growing advertising revenues and solid momentum in the Russian search marketdrove the top line. Additionally, it witnessed year-over-year growth of 23% in paid clicks during the reported quarter.

Nevertheless, Yandex’s strong momentum across the FoodTech business and Media Services benefited the second-quarter results. Additionally, the company’s strengthening B2B logistics services were tailwinds.

Coming to price performance, Yandex has gained 31.1% in the past year compared with the industry’s rally of 0.4%.

Top-Line Details

Total online advertising revenues were RUB 24.8 billion (60% of total revenues), reflectinga decline of 15% on a year-over-year basis.

This decline canprimarily be attributed todeclining advertising spending due to coronavirus pandemic. This, in turn, resulted in weak performance of Yandex properties that generated RUB 20.4 billion (82.5% of total advertising revenues), declining 11% year over year.

Further, softness in the advertising network, which generated RUB 4.3 billion (17.5% of the total advertising revenues), was a negative. The figure slumped 31% from the year-ago quarter.

Taxi revenues of RUB 12.5 billion (30% of total revenues) surged 42% on a year-over-year basis, driven by strength FoodTech services, which negated adverse impacts of coronavirus on the ride hailing business.

Other revenues of RUB 4.2 billion (10% of total revenues) surged 21% from the prior-year quarter. This was primarily driven by well-performingMedia Services, expanding cloud business and strong IoT initiatives, which offset sluggishness in Yandex.Drive.

Yandex N.V. Price, Consensus and EPS Surprise

Yandex N.V. Price, Consensus and EPS Surprise

Yandex N.V. price-consensus-eps-surprise-chart | Yandex N.V. Quote

Segments in Detail

Search and Portal: The segment generated RUB 25.5 billion revenues (61.5% of total revenues), down12% year over year. This was primarily due to softness in the advertising business on account of the coronavirus pandemic.

Nevertheless, the company sustained a strong position in the Russian search market. Notably, its market share was59.6%during the reported quarter, up 270 basis points (bps) year over year. This can be attributed to expanding Yandex’smobile search share. Notably, mobile revenues accounted for 51.3% of the company's search revenues. Further, mobile search traffic accounted for 56.6% of total search traffic. This was driven by Yandex’s search share on Android, which came in at 57.5%, expanding 520 bps from the year-ago quarter.

Taxi: The segment generated RUB 12.5billion revenues (30% of revenues), surging 42% from the year-ago quarter. The impressive year-over-year growth was driven by positive contributions from Yandex.Lavka and Yandex.Eats, which benefited its FoodTech services during the quarter under review. This weighed on the negative impacts of coronavirus on ride hailing business. The number of rides declined 6% from the prior-year quarter. Nevertheless, Yandex witnessed strong performance by its corporate Taxi business.

Classifieds: The segment generated revenues of RUB 886 million (2.1% of revenues), reflecting a decline of 32% year over year. This was due to sluggish real estate demand and closure of auto dealerships on account of the ongoing pandemic.

Media Services: The segment generated revenues of RUB 1.7 billion (4.1% of revenues), soaring94% from the year-ago quarter. This can primarily be attributed to solid momentum across KinoPoisk and Yandex.Music, which generated strong subscription revenues.

Other Bets and Experiments: The segment accounted for revenues worth RUB 2.8billion (6.8% of total revenues), down18% from the prior-year quarter. This was due to suspension of car-sharing services, which led to weak performance of Yandex.Drive in the reported quarter.

Operating Details

In second-quarter 2020, adjusted net income margin was 4.6%, contracting 950 bps from the year-ago quarter.

Its operating margin came in at 0.5% in the reported quarter, contracting from 17.2%in the year-ago quarter. This was owing to declining advertising revenues and increasing investments.

Further, adjusted EBITDA margin was 20.5%, which contracted from 31.6% in the prior-year quarter.

Operating expenses — as a percentage of revenues — was 99.5%, expanding from 82.8%in the year-ago quarter.

The company’s total traffic acquisition cost amounted to RUB 4.2 billion, declining 25% on a year-over-year basis. As a percentage of revenues, the figure contracted 340 bps year over year to 10% in the reported quarter.

Balance Sheet & Cash Flows

As of Jun 30, 2020, cash and cash equivalents were $2.6 billion, up from $1.6billion onMar 31, 2020.

Accounts Receivables totaled $230.7million, decreasing from $216.7 million in the previous quarter.

In the second quarter, cash used in operations was $1.9 million compared with $99 million of cash generated from operation in the prior quarter.

Zacks Rank & Stocks to Consider

Currently, Yandex carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Fastly, Inc. FSLY, Synaptics Incorporated SYNA and Microchip Technology Incorporated MCHP. While Microchip and Synaptics sport a Zacks Rank #1 (Strong Buy), Fastly carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate of Fastly, Microchip and Synaptics is pegged at 25%, 14.5% and 10%, respectively.

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