Yandex (NASDAQ:YNDX) has had a rough go of it in American markets. Back in 2011, YNDX stock traded for around $35 per share. It topped $40 on a couple of occasions, and another time, it dropped all the way to $10. Regardless, eight years later, Yandex stock again trades for $35 a share.
Despite nearly a decade of futility as far as the share price goes, Yandex’s business has been growing admirably. The company has been posting solid double-digit compounded growth rates in revenues and earnings.
Unfortunately, Yandex operates in Russian rubles, and the value of that currency collapsed along with the price of oil. That hit the value of Yandex stock, as quoted in dollars, despite the business performing well. However, it looks like YNDX is finally ready to turn the corner.
A Quick Rundown on YNDX
You’re probably not familiar with Russia or Russian companies outside of what we hear on the news. Although it’s not a pure apples-to-apples comparison, YNDX stock is mostly the Russian equivalent to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Like Alphabet, most folks who use Yandex associate the company with its search engine. Additionally, many Russians take advantage of the company’s free email service. As such, YNDX competes with both Google search, and Gmail. However, Yandex is the clear winner in Russia’s search-engine market.
That said, the Russian tech firm’s management team realizes that search dominance alone won’t generate consistent upside. To further the value proposition for YNDX stock, the company has pushed into several other arenas. For instance, they’re taking a page out of the playbook of Microsoft (NASDAQ:MSFT) and Yahoo by creating apps relevant for Russian users.
Additionally, they signed onto a joint venture with Sberbank (OTCMKTS:SBRCY), a leading Russian financial firm. That move gives them the resources and credibility to disrupt lucrative sectors, such as online marketplaces, media services, and classified ads.
Admittedly, these ventures are hit or miss. Still, as an investor, you have to like management’s willingness to cast a wide net.
Taxis and Yandex Stock
However, those various other assorted services are all small potatoes compared with Yandex’s other big play: the taxi space. Yandex Taxi is now up to 15% of the company’s overall revenues for the full-year 2018. That’s significantly higher from 5% in 2017 and just 3% in 2016.
Taxi is achieving this due to a jaw-dropping revenue growth rate. Revenues surged more than 300% for 2018 versus the prior year. That compares very favorably to rivals in the space.
Therefore, it’s an interesting time to consider Yandex stock.
Unless you’ve been on vacation recently, you probably know that Lyft (NASDAQ:LYFT) just went public in a gigantic $24 billion initial public offering. That made it one of the largest tech initial public offerings (IPO) since Alibaba (NYSE:BABA).
Incredibly, despite losing almost a billion dollars last year and priced at nearly 10x sales, Lyft’s IPO was in high demand. Shares started trading at $87, way up from the IPO price of $72, which itself was up from previous banker projections.
Yandex’s taxi service is significantly further along in terms of successful monetization than Lyft. In fact, thanks to a partnership with Uber, Yandex now controls a huge chunk of the Russian market and already is profitable there, though it loses money in other markets.
Yandex generated around $260 million in taxi revenues in 2018. At the same 10x price-sales valuation as Lyft, that’d be worth more than $2.5 billion. That’s a substantial allocation of the company’s current $11 billion market capitalization.
Arguably, Yandex as a whole should be worth a lot more, as the search business is worth a ton with its dominant market share. Yandex stock is trading under 30x earnings, and that’s with taxi still losing money and the other services — apart from search — contributing very little.
YNDX Stock Verdict
There’s a ton to like here. The search business alone probably justifies the company’s entire current market cap. But in Yandex, you have a company that, providing execution, can become a dominant tech leader across many market niches. They are involved in various other things as well, ranging from a cloud business to a food-delivery service. You have elements of so many attractive tech verticals all lined up within one brand.
And the Lyft IPO and upcoming Uber debut put the taxi business into focus. Given that it has much better economics than Lyft, Yandex Taxi is arguably already worth $2.5 billion or more. Once you realize that its growth rate is in the triple digits annually, things get interesting in a hurry.
Moreover, the comparative financials put YNDX in a quantifiably positive light. For instance, Lyft, despite receiving substantial monetary inflows, doesn’t impress as much as its Russian counterpart. Its 2018 sales totaled $2.16 billion, up 103.5% from the prior-year revenue haul.
Sure, that’s also a triple-digit growth rate. However, Lyft primarily operates in the U.S., with steady international expansion plans. Also, Yandex serves mostly Russia and former Soviet republics. Yet, despite this economic disadvantage, the latter is growing like wildfire.
However, some key risks exist. Russia and the U.S. aren’t on the best of terms. Plus, Russian companies have had serious corporate governance issues in the past. For an emerging-markets tech company, though, there’s a lot to like about Yandex stock.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.
