- The Oppenheimer family of investment funds more than tripled its investment into Yandex - worth over $500 million.
- The market is underestimating the growth potential from its taxi service joint venture with Uber.
- We're getting many of Yandex's other business units for free.
Google is one of the most dominant companies in the world.
It dominates email. Owns Youtube. Google Maps and Waze. Has Google Pay. Is the leader in autonomous vehicles with Waymo. Has a duopoly in smart phone operating systems. But most importantly, owns 90% global market share in online search queries.
It’s penetrated pretty much the entire world… except for two main countries.
China and Russia.
Google tried becoming the leader in Russia. But failed.
Today, we have a solid opportunity to invest in the “Google of Russia.” We’re not seeing the market assign much growth in the next 2-3 years which is a big mistake.
The company we’re recommending is Yandex (NASDAQ: YNDX).
Yandex does everything Google does. It offers email. Live streaming. Maps. Online payment services. And dominates the search engine market in Russia.
It owns 56% of the search engine market – including mobile. Its market share of search on Android phones is 49.1% (both as of the third quarter – Q3 – 2018.)
Search queries (what people are searching) grew 12% year-over-year (yr/yr) from 2017. Paid clicks – which Yandex takes a cut – increased 13%.
But there’s two business units of Yandex that provide all the upside. Upside we don’t think the market is valuing properly.
The first is its taxi joint venture with Uber. The joint venture got finalized early 2018. Uber invested $250 million. Yandex $100 million.
They plan to operate in 127 cities across Eastern Europe – including Russia, Georgia, Armenia, Kazakhstan, Belarus, and Azerbaijan.
Growth is still exploding. Growth in the overall taxi segment increased 131% yr/yr.
It was worth $3.8 billion at the time of the merger. But we think it’s worth a lot more now.
You see, Yandex is already operating driverless taxis across two cities in Russia. It hit its 1000th driverless ride in November 2018. Yandex projects it’ll have at least 100 driverless cars on the road by this summer. (It also wants to remove the safety engineer from the car altogether.)
To get a value on this joint venture we looked at Waymo – Google’s autonomous vehicle venture.
Waymo is estimated to be worth anywhere from $45-175 billion depending on the analyst.
Waymo has logged over 10 million miles from its autonomous vehicles. But it’s rollout is moving a lot slower than expected. It had a pilot to expand in Arizona, but is seeing a lot of pushback from citizens.
Yandex is already on the road and expanding.
We think Yandex will be worth $20-$30 billion in the next two years. We’re assuming a 28.5% equity stake in the joint venture (Yandex’s $100 million investment / $350 million joint venture = 28.5%. But the equity stake wasn’t disclosed.)
At $30 billion, Yandex’s equity stake would be worth $8.5 billion – or $29/share alone.
Its other upside catalyst is its online marketplace and e-commerce platform – an Amazon rival.
The marketplace is called Beru (“I’ll take it”). Bringly is the e-commerce platform.
Yandex will just incorporate these businesses into Yandex.Market which already offers over 160 million products to 20 million monthly users.
Yandex.Market saw 71% growth yr/yr for its most recent quarter – Q3 2018.
The best part is Yandex growing without much opposition. Amazon doesn’t operate in Russia. This allows Yandex to capture all of the upside in online sales from within Russia.
But here’s the kicker. We don’t see the market assigning much value to any of Yandex’s other ventures including:
1) Yandex.Money – Russia’s largest online payment provider;
2) Yandex’s majority stake in Food Party – Russia’s largest meal subscription service;
3) Edadeal – A app that provides discounts, coupons, and cash back opportunities;
4) Yandex.Phone – its recently launched smartphone;
5) Upside in its new home assistant speaker (equivalent to Amazon’s Alexa).
We think the market is missing Yandex’s true growth opportunity. Yandex could easily double over the next 2-3 years.
Recommendation: Buy Yandex (NASDAQ: YNDX) up to $35. We’ll place a volatility based stop loss on the position. Our first target price is $42.
**Although Yandex provides huge upside in the next 2-3 years, we think today presents “okay” value. We suggest buying a 1/4 position into Yandex and accumulate more once it pulls back. We’ll track a 1/4 position today at $32.28.