Since reporting second-quarter earnings on July 26, Yandex (NASDAQ:YNDX), the leading search provider in Russia, has fallen from a summer high of $39.70 to $30.95 as of Sept. 5. Despite an upbeat Q2 conference call that showed fundamental growth, YNDX stock missed earnings-per-share estimates for Q2 by 2 cents and the stock has been under pressure for the past five weeks.
So what should YNDX investors expect for the rest of the year?
Here are three cons to Yandex stock and three pros that investors need to consider.
Three Cons for Yandex Stock
Russia’s Stock Market Fall: YNDX stock experienced its first significant dip in 2018 after it reached an all-time high of $44.49 on Feb. 21. The stock began to fall in late March through April to the low $30’s.
This dip in Yandex stock mirrored that of the broader Russian stock market, which declined in the face of U.S. sanctions. Putting all of this into context, Russia’s relations with the West have sunk to new lows this year as the U.K. has blamed Moscow for the poisoning of a former Russia spy and his daughter as well as a local couple in the quaint city of Salisbury.
Adding fuel to the fire is the fact that Facebook (NASDAQ:FB) and other social media companies have recently deleted accounts that may be linked to a Russia-based group that is suspected to have meddled with U.S. mid-term elections.
Even the impressive Q1 results reported on Apr. 25 could not help stop the bleeding in YNDX stock.
While the current geopolitical environment regarding Russia’s tense relations with the West still raises questions in the minds of the investors, it will probably be difficult for the YNDX stock price to get back to its all-time high, especially in the short-term. Consider that stock in Yandex also experienced its second notable dip of 2018 shortly after the company released its Q2 results.
Pirated Content: Although Russia may not be well known for its tough stance on the protection of copyrighted material, Yandex, also referred to as “the Russian Google” — parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) — has recently found itself at the center of bad publicity and legal action in Russia because of piracy concerns.
On Aug. 24, Moscow City Court and Roskomnadzor, Russia’s watchdog for censorship in media and telecommunications, found the company guilty of indexing pirated content, especially of pirated TV shows owned by the largest Russian broadcasters Gazprom-Media and National Media Group.
The court and authorities asked the company to take down these links by Aug. 31. Yandex waited to yield to these demands until the eleventh hour, when it finally prevented its platform from being blocked by the country’s ISPs. There are rumors that Google is set to receive a similar demand in the coming weeks.
Although Yandex sounded defiant in its press release on Aug. 31, stressing that the company was operating within the law of the land, it later backed down to comply with the court ruling. In 2017, the company had found itself in another similar controversy, when it finally agreed to restrict music service content over copyright protection concerns. Thus, tougher anti-piracy laws in Russia may further affect Yandex’s business model, placing the long-term prospects of YNDX stock into question.
Shorter-Term Technical Analysis: After Yandex investor’s harsh response to the uncertainty over Russian stocks and to the earnings miss in the company’s Q2 earnings report, YNDX stock has suffered from a damaging technical picture.
Its short-term technical chart still looks weak and it is pointing to the possibility for more choppy action, possibly around the low $30’s level. Short-term support for YNDX is at $31; meanwhile, short-term resistance is at $34.5. If the support level in the low $30’s does not hold and breaks through the 52-week low of $29.93 seen on Aug. 31, 2017, Yandex stock could easily see another 20% drop.
Those investors who pay attention to moving averages may want to note that the technical message is mostly a sell, while oscillators are giving a more neutral reading. Meanwhile YNDX stock’s daily volatility is high, giving it a wide trading range, so investors should proceed with caution in the short-term.
Three Pros for Yandex Stock
Yandex’s Fundamental Story: From its humble beginnings and its subsequent initial public offering (IPO) in 2011, Yandex has now reached a market capitalization of $10.5 billion and become the dominant search engine in Russia. YNDX also increased its base in neighboring countries, including Belarus, Ukraine, Kazakhstan and Turkey.
Despite the occasional “emerging market blues” faced by these countries, they are still growing rapidly and Yandex is well poised to further its market penetration in its core business of internet search. For example, a recent report showed that on Android devices in Russia, YNDX now commands a higher share of web searches than Google.
The company has also diversified into successful smaller bets, such as Yandex.Taxi and Plus, a subscription-based membership program, and Station, a smart speaker for the Russian market.
For 2019, analysts are expecting earnings growth of up to 50%. Finally, during the Q2 conference call on July 26, Yandex announced a 12-month share repurchase program of up to $100 million of Class A-shares, which is a potential sign that the management regards the YNDX share price as undervalued.
Yandex’s Growth, Despite Russia Worries: Since late 2013, the Russian economy has fallen on hard times. Crude oil prices, on which the Russian economy heavily depends, slid from $108 in Sep. 2013 to below $30 in Feb. 2016. Moscow’s annexation of Crimea in early 2014 and the political chaos in eastern Ukraine where Russia was a party were met by harsh western sanctions, which almost brought international funding for Russian government, companies and banks to a halt and caused a near-collapse of the local currency.
2017 and 2018 saw Russia-U.S. relations coming under scrutiny and further stress. Despite the difficulties faced by the Russian economy, local firms, such as Yandex, still seem confident enough about the future of the country to continue their plans to raise capital overseas and invest locally and to innovate. Yandex stock, which hit a low of $10 in mid-2015, recovered to reach $44.49 in early 2018. Therefore, there is good reason to believe that the positive narrative behind Yandex stock will continue to outweigh the economic difficulties faced by Russia.
Longer-Term Technical Analysis: Despite the uncertainty over the shorter-term technical chart, YNDX stock is still a buy in the longer-term.
Any future weakness toward the mid-$20’s level could represent a buying opportunity for long-term investors in Yandex. Once the Yandex stock price stabilizes and its recovery begins, the first target would be $35.5 and then the Feb. 2018 high of $44.49. If you are an investor with a 5-year horizon, we could easily see Yandex stock at $90 by the end of 2023.
Still, the stock’s monthly volatility is almost 3%, so as a long-term investor, be prepared for monthly choppiness. Although YNDX stock warrants a “hold” or “slowly accumulate” at its current levels, over the longer-term it represents a good buying opportunity.
The Bottom Line on YNDX Stock
Yandex stock has a strong growth story in Russia and several neighboring countries; thus it remains a long-term growth play on a fundamental basis. However, there might still be stock price weakness in the near-term that potential Yandex stock investors should factor into their investment horizon.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.