Created by Rahul Madhu Mukundh Balasubramanian February 11 th , 2014
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Created by Rahul Madhu Mukundh Balasubramanian February 11 th , 2014 Yandex NV [NASDAQ: YNDX] McIntire Investment Institute 1
description
Yandex NV [NASDAQ: YNDX]. Created by Rahul Madhu Mukundh Balasubramanian February 11 th , 2014. Agenda. Business Overview. Business Overview. RUSSIA: Moscow , St. Petersburg, Rostov-on-Don , Ekaterinburg , Kazan , Novosibirsk UKRAINE: Kiev , Odessa, Simferopol BELARUS : Minsk - PowerPoint PPT Presentation
Transcript of Created by Rahul Madhu Mukundh Balasubramanian February 11 th , 2014
Created by Rahul MadhuMukundh BalasubramanianFebruary 11th, 2014
Yandex NV [NASDAQ: YNDX]
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Agenda
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Business Overview
Thesis Points
Misperception
Catalyst
Risk
VAR
Recommendation2
Yandex NV is the largest internet company based in Europe
4th largest search engine worldwide
Controls significant market search in Russia, Ukraine, Kazakhstan, and
Belarus.
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3Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
RUSSIA: Moscow, St. Petersburg, Rostov-on-Don, Ekaterinburg, Kazan, NovosibirskUKRAINE: Kiev, Odessa, SimferopolBELARUS: MinskUSA: Palo AltoTURKEY: IstanbulSWITZERLAND: Lucerne, Zurich
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uteBusiness Overview
4Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
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uteSegmental
Breakdown
5Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
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uteFinancial Overview
Price $40.17 T P/E (ttm) 32.63 Op Margin 43%Market Cap $13.09B PEG 1.22 Beta 2.81
52w Range 19.93-45.42
Gross margin
74.8%
6Business Overview Thesis Points Misperception Catalyst Risks Valuation Recommendation
Future growth opportunity in CIS countries
Ability to distinguish between inflections
Diversified Service
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• 274.4 Million [2013]• Low internet penetration• Majority of the countries still uses
the Cyrillic alphabets
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strong in CIS Countries
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More 252 million people in Eurasia use the Cyrillic Script
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in Eurasia
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Bulgaria, Bosnia and Herzegovina, Belarus, Kazakhstan, Kyrgyzstan, Macedonia, Mongolia, Montenegro, Russia, Serbia, Tajikistan, Ukraine
Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
According to the International telecommunication agency, the internet penetration rate in CIS is only 51.9% compared to 74% in Europe [2013] M
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eLow Internet Penetration in CIS
Countries
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Russia 53.3%
Ukraine 33.7%
Uzbekistan 36.5%
Kazakhstan 53.3%
Belarus 46.9%
Azerbaijan 54.2%
Tajikistan 14.5%
Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
Modification of a word in order to express a particular grammatical categories
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Inflection Use is a Competitive Advantage
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tense, person, number, gender, mood, voice, and case
Sailor – in “Russian”моряк (nominative) морякa (accusative)
морякa (genitive) моряком (instrumental)
моряку (dative) моряке (prepositional)
Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
“There’s more idiomatic usage on Yandex’s website than through Google Translate.” –Joe K
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Hangout Docs Calendar Google Cloud Print
Groups Google Chrome
Alerts Panoramio
Code Sites Translate Google Keep Blogger News Picasa Maps
Mobile Services
Books Youtube Blog Search News Gmail
Browser Statistics Flights Auto Poster Video Time Pictures Cards Catalog
News Translation Weather SearchBlog Search Corks Dictionaries Timetables Directory Taxi
My Circle Mail Photos Ya.ru Mobile Work Webmaster Metric Network Advertising
People's Map Real estate Disk Calendar Music Money Yandex.XML Market Telecast
Strong Diversification Provides Complete
Experience
Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
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Powered by NAVTEQ Maps
300 cities and towns across Russia, Ukraine, Belarus, Kazakhstan and Turkey with extensive POI data
Panoramic street view images of over 230 cities
Route planner with real-time traffic alerts
Offline capabilities
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14Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
“Yandex’s maps and navigator are way better than Google or Apple.” –Sergey Libin, Senior VP Equity Research, Raiffeisenbank
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• Leading e-commerce payment system• Venture with largest state-owned bank in
Russia• Sberbank [75% - 1]• Yandex [25% + 1]
Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
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Yandex recently signed an agreement with MultiShip
Purchased software platform for $1M
“The biggest obstacles to the spread of e-commerce are problems with logistics and
delivery” – Alexey Avdey, Head of Yandex.Market
Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
Misperception
17Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
Everyone assumes that google dominates the international market
• Yandex (Russia)• Baidu (China)• Nevar (South Korea) M
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Catalysts
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Growth potential in Turkey• It is part of the
Turkic • Mapping services
Cultural Animosity
towards in West in CIS countries
and West
NSA collecting information
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Risks
19Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation
Geopolitical issues
Increased competition from google
Macro and FX risks M
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DCF Analysis
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Enterprise value $58,546.62
subtract: debt
16,960
add: excess cash 2,912
Equity value $44,498.62
divide: # of shares outstanding 908.5
Targetted stock price $48.98
WACC
D/E Ratio 0
Return Weights
Debt 0 0
Equity 27.00% 1
Beta 2.81
Risk-free rate 8.500%
Market risk premium 20.00%
WACC 27.00%
2013A 2014 2015 2016 2017 2018Operating Cash Flow
Revenue 36,235
46,381
59,367
75,990
97,268
124,503
COGS 9,141
10,973
14,045
17,977
23,011
29,454
R&D 5,291
6,957
8,905
11,399
14,590
18,675
SGA 6,215
7,627
9,762
12,496
15,994
20,473
EBITDA 15,588
20,824
26,655
34,119
43,672
55,900
EBITDA*(1-T) 12,470
20,824
26,655
34,119
43,672
55,900
DA
OCF 12,470
20,824
26,655
34,119
43,672
55,900
ONWC
Operating Current Assets 18,191
Operating Current Liabilities 6,682
OWNC 11,509
18,552
23,747
30,396
38,907
49,801
Change 1,154
7,043
5,195
6,649
8,511
10,894
CapEx 4,271
6,193
8,980
13,021
18,880
27,376
Free Cash Flow 7,045
7,588
12,481
14,449
16,281
17,630
Terminal value 86,511
Sum of FCFs 7,045
7,588
12,481
14,449
16,281
104,141
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Sensitivity Analysis
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WACC
Terminal Growth Rate
26.0% 26.5% 27.0% 27.5% 28.0%
6.5% $54.36 $52.47 $50.67 $48.96 $47.33
6.0% $53.38 $51.55 $49.81 $48.15 $46.57
5.5% $52.44 $50.67 $48.98 $47.37 $45.84
5.0% $51.54 $49.83 $48.19 $46.63 $45.14
4.5% $50.69 $49.03 $47.44 $45.92 $44.47
WACC
Terminal Growth Rate
26.0% 26.5% 27.0% 27.5% 28.0%
6.5% 35.3% 30.6% 26.1% 21.9% 17.8%
6.0% 32.9% 28.3% 24.0% 19.9% 15.9%
5.5% 30.5% 26.1% 21.9% 17.9% 14.1%
5.0% 28.3% 24.0% 20.0% 16.1% 12.4%
4.5% 26.2% 22.0% 18.1% 14.3% 10.7%
RecommendationDue to its strong growth opportunity in the CIS countries, firm competitive advantage in inflections and language usage, and diversified services, we recommend MII initiate a 5.5% long
position.
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