Yandex - Hidden Jewel: Self-Driving Cars

Two recent deals in the self-driving car (SDC) space could imply a valuation of $2.5-6.4 bln for Yandex's SDC division, which might mean incremental upside of $4.5-11.7 per Yandex share. Yandex's SDCs are second globally in terms of autonomous miles driven, and the miles driven span three hubs (Russia, the US and Israel), which gives Yandex a unique advantage, as it tests in regions with different road and climate conditions and driving habits. The $34 mln that the company has spent on SDCs is just a fraction of the outlays of peers, which supports our view that Yandex has strong execution capabilities. We reiterate our BUY rating and target price of $56.10 per share. > Two deals in self-driving cars this year. Pony.ai (number five globally in terms of autonomous miles driven) raised $462 mln at a $3 bln valuation in late February, while Google's Waymo (number one) raised $2.25 bln at an undisclosed valuation. If we assume that Waymo placed a 9% stake on a diluted basis, it would value the company at $25 bln. FT references a valuation for GM's Cruise division of $19 bln, given that it is "widely seen as the closest rival to Waymo in terms of its technology."> This puts relative valuation for Yandex's SDC division at $2.5-6.4 bln. Yandex SDC is second globally in terms of autonomous miles driven (2 mln). If we value it based on Waymo ($1,250 per autonomous mile driven; see the table on the next page) and Poni.ai ($3,200), we get a valuation of $2.5-6.4 bln. Yandex SDC is still part of the Yandex.Taxi JV, in which Yandex owns 61%, so it might imply upside of $4.5-11.7 per Yandex share. In our recent report on Yandex, we still did not put any valuation tag on it.> Yandex has spent just $34 mln on SDCs. That is a fraction of what well-funded 1P technology providers have spent and supports our thesis of Yandex boasting strong execution based on organic capabilities. It currently operates around 110 SDCs and plans to eventually expand the fleet to 1,000.> Three SDC hubs provide unique and extensive experience. As discussed in our recent report on Yandex, it tests SDCs on public roads in three hubs in Russia, Israel, and the US. Each location has its own unique features: Russia has snow and icy roads; the US has excellent roads, a strong driving culture and good markings; and Israel has a huge number of scooters and motorcycles on its roads. Thus, each region enriches Yandex's self-driving platform in its own way, and every mile driven improves the algorithms. In contrast, Waymo, the leader in the industry, tests its cars only in US cities (albeit more than 25 cities). Yandex.Taxi's CEO believes that self-driving cars will become a mass product; for this, the cars must be able to operate anywhere and in any conditions.