Yandex Declines After a Noisy Quarter

Russian internet search leader Yandex N.V. (YNDX) announced second-quarter results on Thursday, including relatively steady market-share data, solid advertising growth, and details surrounding a recent joint venture built around the Yandex.Market platform. 

Shares fell a modest 3%, however -- but are still up more than 20% over the past year -- as Yandex's adjusted earnings technically arrived below expectations.

Let's dig deeper to get a better idea of what Yandex accomplished over the past few months, and what investors should be watching going forward.

Image source: Getty Images.

Yandex results: The raw numbers

Data source: Yandex. Figures in Russian rubles (RUR). *Includes Yandex.Market results through April 27, 2018. 

What happened with Yandex this quarter?

• Note that Yandex's reported net income includes roughly 28 billion RUR related to the deconsolidation of Yandex.Market on April 27, 2018, when Yandex and Sberbank formed a joint venture based on the Yandex.Market platform. Now Yandex and Sberbank each own an equal number of the outstanding shares in Yandex.Market.
• Excluding Yandex.Market, revenue grew 39% to 29.4 billion RUR ($467.7 million), and net income increased 67% to 5.3 billion RUR ($84.4 million).
• Adjusted net income -- which excludes items like currency exchange and stock-based compensation -- increased 44% to 5.3 billion RUR, or roughly $0.26 per share. By comparison, most investors were looking for slightly higher adjusted earnings of $0.27 per share.
• Revenue excluding traffic acquisition costs (ex-TAC) and excluding Yandex.Market grew 45% to 24.633 billion RUR.
• Adjusted EBITDA excluding Yandex.Market increased 32% to 8.943 billion RUR.
• Yandex's share of the Russian search market, including mobile, was 56.2% during the quarter, up from 54.3% last quarter but down from 56.5% in the same year-ago period.
• Search share on Android in Russia increased 150 basis points sequentially to 47.8%, and climbed from 38.2% in last year's second quarter.
• Search queries in the country grew 11% year over year.
• Paid clicks increased 10% year over year, and average cost-per-click -- which measures how much Yandex makes per advertisement -- increased 6%.
• Advertising revenue grew 17% to 24.482 billion RUR, driven by a 21% increase from Yandex properties to 18.863 billion RUR, and a 4% gain from advertising network members' sites to 5.619 billion RUR.
• Other/non-advertising revenue skyrocketed 344% to 5.19 billion RUR.

What management had to say

CEO Arkady Volozh stated:

I am pleased to report a strong second quarter, with accelerating revenue growth and significant product introductions. We extended beyond traditional computing platforms with the introduction of Yandex.Station, the first smart speaker developed for the Russian market, and we launched Yandex.Plus, a subscription-based membership program that provides access to a bundle of Yandex services.

COO and CFO Greg Abovsky added, "We are particularly excited by the strength of our core business, driven by rapid revenue growth of search and other Yandex properties."

Looking forward

After backing out the effects of the Yandex.Market deconsolidation, Yandex now expects ruble-based revenue to increase in the range of 30% to 35% year over year in 2018. That marks an increase -- albeit not a directly comparable one -- from Yandex's previous outlook for 28% to 32% growth.

All things considered, and putting aside the noise created by the Yandex.Market joint venture, this appears to be another decent (but not necessarily exceptional) quarter from Yandex. Still, there's no denying the company has an iron grip on the search market-share lead in its home country, as well as impressive top- and bottom-line growth from both its core ad business and its smaller supplementary bets.