Russia's ongoing macro-economic woes have frightened some from investing in Russian-based companies However, Edward Hill-Wood of Morgan Stanley commented in a note that Russia is experiencing a shift of advertising online, proving an opportunity for Internet-based firms, like Yandex.
"In a nutshell the structural shift of usage and advertising online is accelerating well ahead of market expectations," Hill-Wood wrote. "Russia is shifting from a laggard to one of the leading Internet markets globally in terms of user monetisation. This shift has been particularly rapid since 2Q 2015, perhaps aided by a change of behaviour caused by the economic recession."
Support
Hill-Wood offered several key points to support Yandex's growth profile:
- 1. Yandex highlighted a stabilization in trends during its third-quarter conference call.
- 2. Companies such as AliExpress, PayPal Holdings Inc PYPL and JD.com Inc(ADR) JD are all "growing strongly" in Russia. Meanwhile, a potential entry of Amazon.com, Inc. AMZN and Netflix, Inc. NFLX offers Yandex, the largest advertising business in Russia, new sources of advertising growth.
- 3. The introduction of a new VCG auction has been "well executed" and could provide a new source of revenue upside for Yandix.
- 4. Yandex.Market has seen benefits from internal restructuring and additional marketing.
- 5. Yandex is seeing "greater traction" in non-core products, such as Taxi and Auto.ru, in addition to higher traction internationally in Turkey.
Despite a clear path to growth, Hill-Wood noted Yandex is heavily impacted by a weaker ruble. However, Yandex's stock has "heavily" de-rated over the past two years and is now trading at 10.7x EBITDA versus a longer-term average of 13-15x.
Shares of Yandex were upgraded to Overweight from Equal-Weight with a price target raised to $20 from a previous $18.
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