Goldman: Yandex Case 'Challenging,' But We're Upgrading The Stock

• Shares of Yandex NV YNDX have declined 33.48 percent, year to date.
• Alexander Balakhnin of Goldman Sachs has upgraded the rating on Yandex from Sell to Neutral, while lowering the price target from $15.40 to $14.20.
• The upgrade follows the significantly underperformance of the stock versus MSCI Russia and MSCI CEEMEA since January. Balakhnin believes there is 18 percent upside to the stock valuation.

The substantial underperformance of the stock, year to date, was driven by the devaluation of the Ruble rather than strategic issues at the company.

According to the Goldman Sachs report, “Although strategic challenges remain unresolved, this may be temporarily offset by positive market sentiment regarding the FAS decision in the Google, Inc. GOOGL case, while a change in the bidding system and cost-cutting may temporarily offset the financial impact of market share erosion.”

However, Balakhnin believes that the company’s competitive positioning in the mobile segment faces significant challenges due to the dominance of Andriod and that Yandex does not seem to have any “viable strategy to improve its position in search distribution.”

In addition, share price recovery appears unlikely in the foreseeable future, given that significant marketing spend would be required to address the distribution issues.