What to Expect When Yandex Reports Earnings Tomorrow

Russian search giant Yandex (YNDX) will report its first-quarter earnings on Thursday, as shares have stumbled out of the gates in 2014. Turmoil in its major markets of Russia and Ukraine have significantly weighed on the stock in the first few months of the year. The company is in a strong position, nonetheless, controlling over 60% of the search market in the growing Russian Internet population. It has made strategic partnerships with Google (GOOG 1.25%) (GOOGL 1.27%) and Facebook (META 2.98%) to improve its products, but is still battling the former in every market.

Yandex is the most popular website in Russia. The search engine company is often called the Google of Russia because it follows a similar business model as the American tech giant, offering services beyond just search such as email, mapping, and cloud storage. Secular pressure will weigh on the business this quarter, but what can be expected from Yandex when it reports?

Stats on Yandex

Source: Yahoo! Finance

Avoiding a repeat
Yandex hopes to avoid disappointing investors like it did last quarter. In February, Yandex reported net income that missed estimates by 350,000 rubles. Shares slid more than 9% after releasing the disappointing results, and have fallen 26% since the dismal earnings report.

Yandex gave a strong outlook for 2014, however, and projects 25%-30% revenue growth on a like-for-like basis for the year. This gave analysts confidence to maintain their earnings estimates, as the average estimate has declined just one kopek since the last report. Leading up to the last report, analysts had increased their estimates by nearly one ruble.

Although revenue growth is strong at Yandex, both it and earnings growth are slowing significantly. Yandex will have to battle slowing growth in the Russian economy and a weakening ruble as it trades on the NASDAQ.

Recent developments
Yandex had a relatively busy quarter in the first three months of the year, penning important deals with some big American companies.

In January, Facebook agreed to allow Yandex to index the social network's public data. Yandex can use Facebook's data for its social search feature and to improve its organic search results. At the same time, Facebook receives increased exposure in a country where it has struggled against competition. Facebook trails both vKontakte and Odnoklassniki in Russia, and has even mentioned them by name in its 10-K.

In February, Google agreed to share ad inventory with Yandex. This will help Yandex better monetize its minority presence in countries outside of Russia, where Google is still the dominant force in Internet advertising. Meanwhile, Google gets to tell its advertising partners that they can reach up to 96% of the growing Russian Internet population without having to do the heavy lifting. It's a hedge, on Google's part, against being unable to overtake Yandex in Russia.

One of Google's strengths in Russia has been mobile search. Yandex finally took a majority Android search share in December, but still takes a minority share of iOS searches. The company is combatting this by offering its own browser and search app for Android and iOS, and in February the company announced a fork of Android that features Yandex's own suite of apps, as well as its own branded app store.

What to watch for
When Yandex reports, watch for continued strength in revenue growth from the Mail.ru deal last year. This will be the last quarter of favorable comparables, so pay attention to sequential numbers as well. Look for continued progress in mobile search share, and look for linear -- if not faster -- growth in mobile ad revenue.