Yandex's Post-Earnings Plunge Created a Long Opportunity
Nicholas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yandex (NASDAQ: YNDX), Russia’s largest search engine missed consensus earnings estimates in its most recent quarter results despite growing by 30 percent year-over-year. The company’s revenues came out better than expected by analysts increasing by 37 percent, from 2011 to $290.4 million.
Yandex NV shares tanked 14 percent at some stage after earnings announcement, but closed at $23.01, or 10.08 percent decline on Tuesday, February 19. This was the company’s biggest single day slump in nearly 17 months, and came as a surprise to many given that the sole reason was that it missed analyst estimates on earnings.
Who is who in Search?
The Russia-based search engine was recently ranked fourth globally, in terms of market share as tracked by ComScore. Yandex operates in a market dominated by Google (NASDAQ: GOOG), Yahoo!, Microsoft Bing and China-based Baidu (NASDAQ: BIDU), which benefits from China’s massive population. Yandex market share in Russia is estimated at 60 percent, with recent results for December indicating that the company dominated overall search across all operating systems.
Yandex ranks slight adrift of the big four, although Google is technically in a league of its own. The Russian company is looking to exploit opportunities in product development for mobile devices due to the paradigm shift that seems to be moving the market from desktop platforms to mobile. Luckily for Yandex, the mobile platform is more of a level playing ground as compared to desktop, Google’s turf. All companies are just about getting started on mobile, with even the so called titans struggling to monetize.
Baidu on the other hand continues to dominate the Chinese market, but Google is penetrating slowly. Critics believe that Yandex has little to no chance of making any impact on the global platform. However, with its focus on product development, I believe that the Russian search giant has what it takes to establish a formidable challenge.
CEO Arkady Volozh told analysts on a conference call on Tuesday, “Our main focus is on products. We believe that good products drive traffic, and it drives monetization." Indeed Yandex needs to up the ante in mobile. Currently, cell phone users account for 7 percent of the company’s traffic. Development of mobile products and applications would be an ideal strategy to boosting that statistic, and Yandex is right to pursue that path.
The likes of Google, Baidu, Microsoft Bing, as well as Yahoo, are also struggling to match their mobile traffic to desktop, and monetization remains the absolute challenge. The idea here is coming up with right products for mobile, and the company that strikes first would likely carry the day.
The Bottom Line
Yandex’s 10 percent drop on Tuesday provided a perfect opportunity to buy the stock. The stock is rated Buy, or equivalent by leading analysts with price targets well above $30. Actually, you would have to go roll back more than 12 months to find a price target on Yandex below Tuesday’s close of $23.01 per share. Yandex has one of the best forward P/E ratios of 0.68x. I doubt whether it will be able to stick at that level for a day, once it gets there. This is also an indication that despite the slowing growth rate, the company’s 2013 outlook remains bright.
Nmaithya has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!