Yandex - Resilient But Not Immune

We reiterate our BUY recommendation for Yandex but reduce our target price by 25% to $41.83 per share because of the FX effect (56% contribution) and a downward revision of forecasts due to the expected adverse effect of the lockdown and the weaker economic activity that will likely be seen even when the lockdown ends.> Better positioned than in 2015 in terms of FX sensitivity. As we discussed in our report from March 11, we estimate that Yandex's FX-linked expenses are 4-5% of revenues, compared with around 25% in 2015.> Pressure on online ad market will be stronger than in 2015 and stronger than we originally expected. We now expect the online ad market to grow just 1.3% in 2020 (and to drop 10% in 2Q20 and 3% in 3Q20). However, we expect Yandex to grow ahead of the market due to its favorable positioning in performance-based advertising. This caused us to reduce our estimate for revenues from the core "search and portal" business in 2020E by 7.2% and by 13.6% on adjusted EBITDA given the adverse FX effect.> Lockdown significantly reduced demand for transportation services. We now expect a significant slowdown in the growth of rides for taxi aggregators, from around 50% in 2019 to around 7% in 2020 due to the lockdown and consequent slowdown of business activity. This leads us to reduce estimates for Yandex.Taxi's ride-hailing business in 2020E by 26% for net revenues and 51% for adjusted EBITDA. We think Yandex might not be able to increase its take rate as we had expected earlier, while the average price per ride might suffer due to fewer instances of surge prices.> Valuation. We reiterate our BUY rating for Yandex but reduce our target price by 25% to $41.83 per share, due to the FX effect (56% contribution) and forecast revisions for the core (19%) and taxi (15%) segments. We value the Yandex.Taxi JV (in which Yandex holds a 61% stake) at $6.0 bln, which implies $10.84 per Yandex share, or 26% of our target price. Yandex is trading at a 2020E EV/EBITDA of 16.1 and P/E of 37.4 (and at a respective 9.1 and 20.2 for 2021E). Excluding the taxi JV stake (at the $4.0 bln implied valuation), Yandex is trading at an EV/EBITDA of 9.7 for 2020E and 6.1 for 2021E.> Events to watch. The length of the lockdown and what support measures come from the government are key right now. We would also watch how private consumption, the advertising market and the use of shared and O2O services shape up. As we discussed in our February 19 report, Yandex shares might become eligible for inclusion in the MSCI indexes this year, which would bring incremental demand for the stock. The company's extensive cash pile ($2.6 bln) might allow it to make value-accretive acquisitions at distressed prices. A key risk remains possible adverse changes in regulation, although we are not currently aware of any in the pipeline. Yandex has well-funded competitors in its core sectors, so we would watch developments there too.