YNDX: Time To Buy Yandex?

Edward Hill-Wood of Morgan Stanley commented in a note that the impact of worsening macro conditions in Russia is more than offset by a faster share shift of online advertising.

Hill-Wood noted that this trend benefits Yandex NV YNDX , a Russian-based search engine operator.

Hill-Wood upgraded shares of Yandex to Overweight from Equal-Weight, with a price target raised to $20 from a previous $18.

Russia's ongoing macro-economic woes have frightened some from investing in Russian-based companies However, Edward Hill-Wood of Morgan Stanley commented in a note that Russia is experiencing a shift of advertising online, proving an opportunity for Internet-based firms, like Yandex.
"In a nutshell the structural shift of usage and advertising online is accelerating well ahead of market expectations," Hill-Wood wrote. "Russia is shifting from a laggard to one of the leading Internet markets globally in terms of user monetisation. This shift has been particularly rapid since 2Q 2015, perhaps aided by a change of behaviour caused by the economic recession."

Support

Hill-Wood offered several key points to support Yandex's growth profile:

• 1. Yandex highlighted a stabilization in trends during its third-quarter conference call.
• 2. Companies such as AliExpress, PayPal Holdings Inc PYPL  and JD.com Inc(ADR) JD  are all "growing strongly" in Russia. Meanwhile, a potential entry of Amazon.com, Inc. AMZN  and Netflix, Inc. NFLX  offers Yandex, the largest advertising business in Russia, new sources of advertising growth.
• 3. The introduction of a new VCG auction has been "well executed" and could provide a new source of revenue upside for Yandix.
• 4. Yandex.Market has seen benefits from internal restructuring and additional marketing.
• 5. Yandex is seeing "greater traction" in non-core products, such as Taxi and Auto.ru, in addition to higher traction internationally in Turkey.

Despite a clear path to growth, Hill-Wood noted Yandex is heavily impacted by a weaker ruble. However, Yandex's stock has "heavily" de-rated over the past two years and is now trading at 10.7x EBITDA versus a longer-term average of 13-15x.
Shares of Yandex were upgraded to Overweight from Equal-Weight with a price target raised to $20 from a previous $18.