yandex 11/2016 update - taxi growth a little light

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Yandex

Yandex is one of the largest internet companies in Europe, operating Russia's most popular search engine and its most visited website. Yandex also serves Turkey, Ukraine, Belarus and Kazakhstan.

 

Launched in 2011 Yandex.Taxi quickly became one of the most popular online taxi booking services in Moscow and later launched in a number of cities across Russia. The Company currently operates its service in 12 cities across Russia. In early 2016 it expanded beyond Russia by launching its service in Minsk, Republic of Belarus and in October 2016 in Kyiv, Ukraine. Nine months ended September 30, 2016 resulted in 165% increase of revenue in Yandex.Taxi to RUB 1,560 million ($24.7 million) comparing to $13.5 million generated over 12 months 2015, percentage out of total sales increased to 2.9% comparing to 1.6% in 2015.

 

Yandex announced termination of agreement to acquire its Moscow headquarters, which rent is U.S. dollar-denominated. Such acquisition will strengthen operating results, as till now rent significantly increased due to RUB depreciation.

 

In 2015 the Company launched Yandex.Delivery. The service aggregates a number of third party delivery carriers, courier services, pick-up points and automated selfservice kiosks to accommodate delivery of goods across Russia, giving our retailer customers a single point of entry. Our retailer customers can utilize our software to display delivery options, including price and time of delivery, right on their website. The service helps our customers boost conversion rates, cut logistics costs and expand their geographic reach.

 

In March 2015 the Company launched its tour aggregator Yandex.Travel service. It allows users to search for a vacation using multiple criteria and taking their personal preferences into account. Its unique feature is the ability to compare the price of a holiday provided through an agency with a "do it yourself" trip where users buy tickets and book hotels on their own. The Company also provides information such as hotel reviews that it generates using its fact extraction technology.

 

Acquisitions

In February 2016, the Company signed a definitive agreement with Krasnaya Roza 1875 Limited, a Cypriot company ("KR1875"), pursuant to which the Company will issue 12,900,000 new Class A ordinary shares to KR1875 in exchange for a 100% interest in a newly-created company ("NewCo") that will hold title to the office complex in central Moscow that houses the Company’s Russian headquarters, with around 80,000 square-meters of Class A and B office space. The Company will also assume approximately $490 million of the NewCo's debt. The debt is denominated in U.S. dollars, bears interest at LIBOR + 6.2% and matures in 2024. KR1875 has agreed to enter into a lock-up agreement in respect of the shares it will receive for a period of 90 days from closing. The closing of the transaction remains subject to customary conditions, including completion of the legal reorganization of the ownership structure of the complex and required regulatory approvals, and is anticipated to occur in the second half of 2016.

 

In February 2016, the Company purchased approximately 21% interest on a fully diluted basis in 200 Labs Inc. ("200 Labs"), a California-based software company, for up to $3.5 million (RUB 266 at the exchange rate as of the date of acquisition), including $2.7 paid upon completion of the deal and $0.8 payable in three equal instalments within 18 months from the date of completion and subject to continued employment of the founders by 200 Labs. 200 Labs also has an option to sell to the Company additional stock, representing approximately 3.5% interest on a fully diluted basis for up to $0.8 within 2 years following the completion. The Company exercises significant influence over 200 Labs and accordingly accounts for this investment under the equity method.

 

In December 2015, the Company completed the acquisition of assets and assumption of liabilities of Agnitum Ltd ("Agnitum"), an antivirus protection developer, for a cash consideration of RUB 120 million ($1.65 million) and a deferred payment of up to RUB 80 million ($1.1 million) including additional payments subject to the attainment of certain implementation and integration milestones of up to RUB 60 million payable in cash and up to RUB 20 million to be granted in restricted share units.

 

In January 2015, the Company bought the assets and assumed the liabilities of the RosTaxi ("RosTaxi") business, which operates a taxi fleet management application. The agreement stipulates for a cash consideration of up to RUB 500 million ($6.9 million), including a deferred payment of up to RUB 380 million, subject to successful technical integration and client base transition, and contingent consideration of up to RUB 500 million ($6.9 million) payable in ordinary shares on the third anniversary of the closing, depending on the number of qualifying taxi trips.

 

In September 2014, the Company bought the assets and assumed the liabilities of ADFOX LLC ("ADFOX"), which operates an advertising technology platform that provides services for planning, managing and analyzing advertising campaigns on the internet. We paid cash consideration of $11.3 million, including $8.5 million paid upon closing of the deal and $1.4 million paid on the first anniversary of the closing in the fourth quarter of 2015. The amount of $1.4 million will be paid on the second anniversary of the closing assuming no warranty claims.

 

In August 2014, the Company completed the acquisition of the Auto.ru group ("Auto.ru"), one of the leading online auto classifieds businesses in Russia, for cash consideration of $178.4 million paid in full upon closing of the deal, including $14.0 million paid into an escrow account of which half has been released to the sellers in February 2016. The remaining amount in escrow will be paid to the sellers on the date falling 43 months after the completion date, assuming no warranty claims.

 

In March 2014, the Company completed the acquisition of a 100% ownership interest in KitLocate Ltd., the developer of an energy-efficient geolocation technology for mobile devices, for cash consideration of up to $10.2 million, including $4.0 million paid in full upon closing of the deal, up to $2.3 million of earn-out payments on the achievement of certain distribution milestones, and $3.9 million paid to an escrow account, the release of which was subject to KitLocate's founders continued employment. The Company recorded the milestones related earn-out payments at the fair value of $1.5 million as part of purchase consideration. The Company has not recorded the contingent payments related to the continued employment as purchase price consideration but instead recorded them as compensation expense as the former KitLocate's shareholders completed their requisite service periods. The Company fully settled its obligations by paying $1.9 million for milestones related earn-out payments and releasing the escrowed amount in full in July 2015.

 

In October 2013, the Company completed the acquisition of a 100% ownership interest in KinoPoisk LLC and its subsidiary, the operator of the largest and most comprehensive Russian-language website dedicated to movies, television programs and celebrities. In connection with this acquisition, the Company paid cash consideration of $80.0 million in full upon the closing of the deal, including $3.0 million paid into an escrow account, which has now been released to the sellers.

 

In November 2011, the Company acquired the mobile software business of SPB Software. The acquisition consisted of 100% of the shares of SPB Software, Inc. (US), SPB Software Limited (Hong Kong) and SPB Software Co. Limited (Thailand), and the assets of Phonesoft Consulting Ltd. (Russia). In connection with the acquisition, the Company made initial cash payments to the sellers aggregating $24.3 million (RUR 745 million at the exchange rate as of the acquisition date) on closing. The Company also agreed to make further aggregate contingent cash payments to the sellers of a maximum aggregate amount of $14.1 million (RUR 433 million at the exchange rate as of the acquisition date), payable on the achievement of specified performance milestones and the continued employment of the relevant sellers. The Company paid $7.1 million (RUR 216 million) of this contingent consideration in November 2012, $4.1 million (RUR 126 million) in February 2013, and the remaining $2.9 million (RUR 90 million) in November 2013. In accordance with U.S. GAAP, the Company did not record these contingent payments as purchase price consideration but instead accrued for them as compensation expense included within our product development and selling, general and administrative expenses in 2012 and 2013.

 

In August 2011, the Company completed the acquisition of a 9.7% ownership interest in Blekko, Inc., a US-based internet search engine for $15.0 million (RUR 478 million at the exchange rate as of the acquisition date). In June 2013, the Company increased its ownership interest in Blekko to 11.2% and received a warrant for Blekko shares representing 0.5% of its outstanding share capital in exchange for settlement of Blekko's obligation to the Company of $3.5 million (RUR 112 million at the exchange rate as of the acquisition date).

 

In July 2012, the Company completed the acquisition of a 25% ownership interest in Seismotech LLC, a Russian-based geophysical data processing company, for $0.9 million. We also have a 3-year option to buy another 25% interest in that company at a fixed price.

 

In July 2010, the Company completed the acquisition of a 100% ownership interest in GIS Technology LLC ("GIS"), a company specializing in the production of electronic maps, for cash consideration of approximately RUR 143 million ($4.7 million) in order to develop in-house content for one of its key services. This acquisition was accounted for as a purchase business combination.

 

Disposals

In July 2013, the Company completed the sale of a 75% (less one ruble) interest in Yandex.Money to Sberbank for $59.1 million in cash. Concurrent with the sale of the Company’s interest in Yandex.Money, the Company formed a joint venture with Sberbank in respect of this business, which continues under the Yandex.Money brand. As a result of this sale, the Company deconsolidated Yandex.Money and no longer show its online payment commissions as revenue. Since July 2013, the Company has accounted for Yandex.Money using the equity method, and, therefore, record its share of the results of operations of the joint venture within the other income, net line in its consolidated statements of income.

 

In July 2012, the Company completed the sale of our ownership interest in Face.com, Inc. (formerly Vizi Information Labs Ltd.) to a subsidiary of Facebook, Inc. for cash consideration of $5.7 million and 142,479 shares of Facebook, of which the Company sold 93,971 shares in 2013 and 48,508 shares in 2014.

 

Summary (from latest annual report 2015, ended Dec 31)

  • Market Capital: $6,350,000,000 (last share price is $19.58).
  • Total stockholders’ equity: $961,800,000 down by $28,900,000 or -3% from $990,700,000 in 2014. In RUB increased by 26% primarily thanks to net income.
  • Current liabilities: $160,100,000 or 10% out of total liabilities and equity is down by $14,000,000 or -8% from $174,100,000 in 2014. In RUB increased by 19%.
  • Non-current liabilities: $412,300,000 or 27% out of total liabilities and equity is down by $110,200,000 or -21% from $522,500,000 in 2014. In RUB increased by 3%.
  • Net sales: $820,400,000 down by $82,000,000 or -9% from $902,400,000 in 2014 due to RUB depreciation by 30% from 56.26 in 2014 to 72.88 in 2015. Revenues in local currency RUB increased by 18% primarily from growth in sales of text-based ads, driven by an increase in the number of paid clicks and fluctuations in average cost-per-click paid by our advertisers. 97.4% of total revenues in 2015 and 98.8% in 2014 are derived from advertising. The company served ads for 394,000 advertisers in the fourth quarter of 2015 and more than 680,000 in the full year 2015, compared with 317,000 in the fourth quarter of 2014 and 558,000 in the full year 2014. Its advertisers include individuals and small, medium and large businesses throughout the countries in which Yandex operates, as well as large multinationals. Small and medium-size enterprises purchase the bulk of its text-based advertising. No particular advertiser accounted for more than 1.2% of total revenues in 2013, 2014 or 2015.
    • Including revenues from Taxi segment: $13,500,000 or 1.6% out of total sales up by $7,700,000 or 132% from $5,800,000 in 2014 (in RUB increased by 201%) is primarily due to organic growth in the business and effect of revenues from RosTaxi, which was acquired in January 2015. Taxi—derives revenue from commission for online transportation service delivered via Yandex. Taxi currently operates in 12 cities across Russia and in Minsk, Belarus.
  • Net income: $132,800,000 down by $169,700,000 or -56% from $302,500,000 in 2014 (in RUB -43%) was primarily due to increases in depreciation and amortization as a percentage of total revenues reflecting investments in servers and data centers made in 2014 and 2015, and to increases in rent expenses attributable to further appreciation of the U.S. dollar in 2015 compared to 2014 (Moscow headquarters is U.S. dollar-denominated), as well as to salary increases implemented in early 2015.
  • Cash and cash equivalents: $332,600,000 up by $19,000,000 or 6% from $313,600,000 in 2014.
  • $268,600,000 provided by operating activities: decreased by $7,700,000 or -3% compared to fiscal 2014 (2014: $276,300,000). In RUB increased by 26% primarily due to significant decreases in prepaid expenses and other assets, principally arising from a decrease in interest receivable accrued.
  • -$160,206,000 used in investing activities: decreased by $347,959,000 or -68% compared to fiscal 2014 (2014: -$508,166,000). In RUB decreased by 59% as a result of decreases in investments into term deposits (net of repayments) of RUB 10,845 million and in cash paid for acquisitions of new businesses of RUB 5,962 million, an increase in proceeds from maturities of debt securities of RUB 2,851 million and the amount of cash placed in escrow of RUB 714 million primarily related to contingent compensation payable to the sellers of Auto.ru and KitLocate in 2014, which was partially compensated by increases in capital expenditures of RUB 3,366 million. Cash paid for acquisitions of businesses in 2015, net of cash acquired, primarily consists of cash paid for RosTaxi in January 2015 and for Agnitum in December 2015. Investments in debt securities consist of cash paid to purchase credit-linked notes.
  • -$82,641,000 used in financing activities: decreased by $125,449,000 or -60% compared to fiscal 2014 (2014: -$208,090,000). In RUB decreased by 49%.

 

 

 

Subsidiaries

Name of Subsidiary, Jurisdiction of Organization

  1. Auto.ru LLC Russia$178.4 million
  2. Kinopoisk LLC Russia$80.0 million
  3. SPB Software Ltd. $38.4 million
  4. KitLocate Ltd. Israel$10.2 million
  5. GIS Technology LLC Russia$4.7 million
  6. INO SPE SDA Russia

 

 

Opinion about the company

Fundamentally it is a good company, which has the most Russian search market share 55.9% in Q3 2016 ahead key competitors Google (35%) and Mail.ru (6%). Total debt is $601.3 million, the company has 818.5 million USD in cash on account as on September, 30 2016, ROE is 13.8% (2015).