Citi Upgrades Yandex To Buy 'On Share Gains, Margin Recovery'

Citi’s Brady Martin upgraded the rating for Yandex NV YNDX from Neutral to Buy, with a price target of Ruble 1,150, on expectation of a recovery in the company’s margins following the acquisition of its Moscow Headquarters.

The stabilization of the Russian ad market as evident from the 0.5 percent y/y growth recorded in 4Q15, versus a decline of 17.3 percent, 15.4 percent and 8.1 percent in 1Q, 2Q and 3Q, has fueled Internet advertising growth.

Internet advertising growth accelerated from 9 percent in 1Q, to 10.7 percent in 2Q, to 14.9 percent in 3Q and to 21.3 percent in 4Q, analyst Brady Martin stated. Internet advertising’s share in the total ad market increased from 24.9 percent in FY14 to 31.6 percent in FY15.

Margin Recovery At Yandex

According to liveinternet.ru, Yandex had appreciable search share gains in February, after years of steady declines. The purchase of the company’s Moscow office is also likely to result in a sharp margin recovery, besides removing forex risk to margins in the near future.

Martin expects the purchase of the Moscow office to deliver more significant margin gains than the 600 basis points guided by management over time.

Yandex’s growth prospects are expected to be driven by the company’s ability to maintain its growth edge over its Russian peers, a recovery in the Russian ruble and fixing of forex rents, Martin added.