Image source: Yandex N.V.

Yandex N.V. (NASDAQ:YNDX) released a better-than-expected third-quarter report on Thursday, and shares climbed 5% as a result. Let's have a closer look at how the Russian internet search leader kicked off the second half of the year.

Yandex results: The raw numbers


Q3 2016 Actual

Q3 2015 Actual

Growth (YOY)


19.29 billion RUR

15.44 billion RUR


Adjusted net income

3.79 billion RUR

3.51  billion RUR


Adjusted EPS (diluted)

11.61 RUR

10.89 RUR


Data source: Yandex N.V. *Figures in Russian rubles. YOY = year over year. 

What happened with Yandex this quarter?

  • Revenue excluding traffic acquisition costs -- which Yandex likens to sales commissions -- increased 28% year over year, to 15.56 billion RUR.
  • Adjusted earnings before interest, taxes, depreciation and amortization grew 14% year over year, to 6.02 billion RUR.
  • Shares of the Russian search market, including mobile, averaged 55.9% during the quarter, down from 57% and 57.6% in the second and first quarters of this year, respectively. According to Yandex management, this decline came primarily as Android market share fell slightly on a sequential basis given increased activity from Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Google on its own applications through notifications other similar mechanisms.
  • Desktop represented around 70% of total search traffic during the quarter, with a market share in Russia steady at around 64%.
  • Mobile represented 30% of search traffic in Q3, with overall search share in the low 40% range. The difference here, according to Yandex management, is "mainly due to limited distribution opportunities on android and iOS mobile platforms."
  • Search queries in Russia increased 5% year over year.
  • Top-line gains were broad-based as usual, including:
    • 21% growth in search and portal revenue, to 17.48 billion RUR.
    • 45% growth in e-commerce revenue, to 1.2 billion RUR.
    • 151% growth in taxi revenue, to 587 million RUR.
    • 45% growth in classifieds revenue, to 352 million RUR.
    • 98% growth in "experiments" revenue, to 210 million RUR, driven by media segments including KinoPoisk, Yandex.Radio, Yandex.Music, Yandex.Tickets, Yandex.Afisha, and Yandex TV programs.
  • Total advertising revenue rose 22% year over year, to 18.44 billion RUR, representing 95.6% of total revenue. That figure includes:
    • a 21% increase in revenue from Yandex websites, accounting ofor 70% of total revenue.
    • 27% growth in ad network partner revenue, to contribute 26% of total revenue.
  • "Other" revenue climbed 130% year over year, 853 million RUR, primarily driven by Yandex.Taxi.
  • Aggregate paid clicks increased 12% year over year.
  • Average cost per click increased 10% year over year.
  • Regarding Yandex's antitrust complaint against Google, Yandex reminded investors that the Federal Anti-Monopoly Service (FAS) issued a decision to Google to cease anti-competitive practices last year, followed by another positive ruling upholding that decision two quarters ago. But after a hearing in August, with which Yandex says the "FAS ruling came into force," Google still hasn't "implemented the FAS prescription."
  • As such, according to Yandex chief operating officer Alexander Shulgin, "FAS opened an administrative investigation, considering Google's noncompliance was zeroed in." Shulgin further promised Yandex is monitoring the situation and will update investors as it changes.

What management had to say

"Revenue and EBITDA continued to grow strongly in Q3, boosted by innovation on our advertising platform," added Yandex CEO Arkady Volozh. "We see new opportunities in our geolocation services to drive revenues from our maps and navigation products."

Shulgin added that Yandex achieved this growth while making large investments in its fastest-growing business units. In particular, Yandex is aggressively working to expand its Taxi market position and is accelerating Yandex.Market's transition to a cost-per-action model after "encouraging market tests."

Looking forward

As such, Yandex once again raised its full-year guidance and now anticipates that 2016 revenue will grow 22% to 24% year over year, up from previous guidance for 19% to 22% growth over 2015.

In the end, Yandex's continued market share declines and legal struggles with Google notwithstanding, this was another strong quarter featuring broad growth across Yandex's portfolio of businesses. And assuming Google does formally comply with the FAS ruling, as Yandex expects it will, it should leave the company much better poised to reclaim some of the share it has lost on Big G's Android platform. So while I think investors would be wise to continue closely watching that situation as it unfolds, it was no surprise to see shares of Yandex up nicely following this report.

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