The Internet giant in Russia Yandex maintains ambitious plans in the e-commerce arena for this year and sees its ecosystem as a key competitive advantage, Sova Capital wrote on March 11 after a call with executives and investors at Yandex.
As reported by bne IntelliNews, in 2021 Yandex for the fifth consecutive year topped the list of most valued tech and internet companies with a valuation of $ 23 billion. His the investment case is now based on developments in transport, e-commerce and food technology.
Sova noted that management’s plans leave “a moderately positive impression” as the search and ad segments, as well as ridesharing, the company’s largest verticals, continue to recover, and Yandex ” the competitive position remains defensible “.
There is also upside potential in the logistics services of Yandex and Yandex.Plus, as well as the commercialization of the Yandex.Rover email robot, Sova believes, while maintaining a buy recommendation on the business name to 2021-2022. . Estimated price / profit of 50.5x-36.6x and enterprise value / EBITDA of 29.0-19.6x.
Main segments remain strong
In the core research and advertising segment, Yandex continued to recover in 2M21, up 14% year-on-year. The company still expects the Russian online advertising market to grow in the mid-teens this year.
“There could be an additional positive effect of the pre-installation law, which has not yet been budgeted by the company,” Sova noted.
According to the latest report from Kommersant, the Russian government could add a clause on its terms for the mandatory pre-installation of Russian applications on new electronic devices by April, with the law also coming into force in April.
Kommersant sources believe that Yandex will be the beneficiary of such a decision (59.9% total share and 55.7% on mobile versus 1% for Mail.ru research, according to Yandex).
“It’s not entirely clear whether a Russian search engine is slated to become the mandatory default or a mandatory part of the screen of choice, and whether Yandex is chosen as the beneficiary. Still, that could be positive for Yandex’s research share over time, ”BCS Global Markets commented on March 15.
In the meantime, Zen continues to be one of Yandex’s key strengths in competing with social media. “Zen is comparable to major Russian social networks (eg VK) in terms of time spent on the platform, but its income is growing faster,” commented Sova, with revenues of 13.1 billion rubles (178 million dollars) in December 2020 (up 49% y / y).
For comparison, the VK (VKontakte) of Mail.ru, one of the largest social networks in Russia, generated 25.4 billion rubles in revenue in 2020 (up 17% year-on-year in 4Q20 alone).
Top 3 e-commerce goals
As followed by bne IntelliNews, Yandex intends to become one of the top three players in e-commerce (after Wildberries and OZON) in Russia by 2021, aiming for competitive advantages such as the integration of its e-commerce offer within the Yandex.Plus subscription service (8.5 million subscribers), deliveries on demand with the Yandex.Lavka online grocery service.
“One of the main challenges of e-commerce is the development of infrastructure, which is the main focus of the company at the moment,” warns Sova, noting that Yandex is testing various options for partnering with merchants (e.g. , drop shipping by sellers) and improve the return- finish.
As reported by bne IntelliNews, Yandex to merge its transportation and e-commerce assets under a single “E-commerce and Ride-tech” vertical, in addition to “Research, advertising and cloud services”.
“Yandex is very excited about its logistics opportunity, given that it is a platform with a strong network effect (the density of supply and demand is high) and a huge profit opportunity », Commented Sova Capital.
The company was able to increase the number of its B2B logistics service customers from zero in March 2020 to 15,000 by the end of 2020, and the company notes that these services are used by Yandex peers such as OZON and Avito.
On the Yandex.Taxi joint venture with Uber Technologies, the company’s basic limousine service continues to recover, while the market position remains defensible, says Sova. Foodtech and Yandex.Eats have not seen a slowdown this year so far, and Yandex.Lavka online grocery stores continue to grow rapidly.
Yandex is also The Russian leader in autonomous driving technology and in 2020 doubled its fleet of 100 autonomous vehicles. Operational driverless taxis were considered possible by 2024 by analysts.
“Although Yandex expects commercial use of self-driving cars to begin in at least five years, commercial deliveries through its Yandex.Rover messaging robot could be available next year,” according to Sova Capital.
Yandex managers seemed rather optimistic about the prospects for Yandex.Rover, Sova analysts note, because it is a much simpler product (compared to self-driving cars) with easier tasks and fewer requirements. regulatory.
FinTech, media, cloud services could see their advantage
the the company continues to explore FinTech opportunities, and aims to launch a financial service within the next 12 months. That said, Yandex has yet to share any details, according to Sova.
In another report from The Bell, Yandex is said to have acquired small Russian bank Akropol (around Rb 1 billion) and may sign the deal shortly. It would appear that the acquisition concerns only the banking license, which would form a basis for the construction of Yandex’s fintech vertical.
“The deal would likely mean that Yandex opts for primarily organic development of its fintech vertical,” commented BCS Global Markets.
Other benefits could come from media services, as the company believes that by the end of this year, the number of subscribers to Yandex.Plus could reach the few million subscribers (up from 8.5 million currently). .
Yandex’s cloud business has the potential to grow 2.5 times in 2021 and could deliver solid growth rates in 2022 and beyond, Sova believes.
“The costs of this business are mostly fixed, which creates opportunities to balance and generate additional profit at some point in the future,” commented analysts; However, it is not entirely clear how much this business could grow relative to the size of Yandex’s combined operations.