Yandex: Potential For Growth Quite Large, Share Buyback Likely After Trading Restarts

seekingalpha08-07

Yandex N.V. reported impressive 2Q24 results with significant revenue growth.Nebius AI and Toloka AI segments showed positive growth trends, with potential for surpassing revenue goals. TripleTen and ...

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TripleTen and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4710914-yandex-potential-for-growth-quite-large-share-buyback-likely-after-trading-restarts\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Yandex: Potential For Growth Quite Large, Share Buyback Likely After Trading Restarts</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nYandex: Potential For Growth Quite Large, Share Buyback Likely After Trading Restarts\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-07 00:23 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4710914-yandex-potential-for-growth-quite-large-share-buyback-likely-after-trading-restarts><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Yandex N.V. reported impressive 2Q24 results with significant revenue growth.Nebius AI and Toloka AI segments showed positive growth trends, with potential for surpassing revenue goals. TripleTen and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4710914-yandex-potential-for-growth-quite-large-share-buyback-likely-after-trading-restarts\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SQQQ","symbol_name":"纳指三倍做空ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4710914-yandex-potential-for-growth-quite-large-share-buyback-likely-after-trading-restarts","article_id":"2457295073","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1361008761/image_1361008761.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2457295073","pubTimestamp":1722961396,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Yandex N.V. reported impressive 2Q24 results with significant revenue growth.Nebius AI and Toloka AI segments showed positive growth trends, with potential for surpassing revenue goals. TripleTen and ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SQQQ":"纳指三倍做空ETF","BK4514":"搜索引擎","LU0329931173.SGD":"汇丰俄罗斯股票基金CL AD SGD","LU0329931173.USD":"HSBC GIF RUSSIA EQUITY \"AD\" (USD) INC","LU0329931090.USD":"HSBC GIF RUSSIA EQUITY \"AC\" ACC","QID":"纳指两倍做空ETF","LU0171273575.USD":"Blackrock Emerging Europe A2 USD","LU0531971165.HKD":"HSBC GIF RUSSIA EQUITY \"AD\" (HKD) INC","TQQQ":"纳指三倍做多ETF","BK4569":"俄罗斯概念","LU0572106309.SGD":"Blackrock Emerging Europe A2 SGD-H","BK4566":"资本集团","PSQ":"纳指反向ETF","QLD":"纳指两倍做多ETF","LU0246274897.USD":"UBS (LUX) EQUITY SICAV - RUSSIA \"P\" (USD) ACC","BK4077":"互动媒体与服务",".IXIC":"NASDAQ Composite"},"translate_title":"Yandex：增长潜力相当大，交易重启后可能回购股票","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"YNDX":1,".IXIC":0.9,"TQQQ":0.6,"SQQQ":0.6,"QLD":0.6,"QID":0.6,"PSQ":0.6,"NQmain":0.6,"MNQmain":0.6},"content_text":"Yandex N.V. reported impressive 2Q24 results with significant revenue growth.Nebius AI and Toloka AI segments showed positive growth trends, with potential for surpassing revenue goals. TripleTen and Avride also showed promising developments in their business.Potential share buyback could significantly increase the fair price of the remaining outstanding shares.I am waiting for the resumption of stock trading on NASDAQ in the near future.MF3d Background A little over a week ago, I wrote an article about a possible valuation of Yandex N.V. (NASDAQ:YNDX), which resulted in a $23.6 per share valuation. Before reading this article, I recommend that you first read my last article, as it presented my approach to valuing the company. This article will also focus on the company's second-quarter financials and my thoughts on the company's business highlights. Looking ahead, I don't see any factors for revising the company's valuation from $4.7 billion or $23.6 per share downward. Rather, there is a possibility that the valuation could be higher. At the beginning of this article, let's go through the performance of Yandex N.V. in 2Q24, and then separately for each of the businesses. 2Q24 Results Total Yandex N.V.'s revenue for the quarter was $24.9 million, implying growth of 430% YoY and 113% QoQ. For the first half of the year, the company's revenue totaled $36.3 million (+295% YoY). Quite impressive growth, albeit with a low base effect. The adjusted EBITDA loss in 2Q24 amounted to $68.1 million, which implies a margin of -273%. However, it should be noted that the adjusted EBITDA loss for the same quarter last year amounted to $68.6 million. Therefore, maintaining the operating loss at approximately the same absolute level with such revenue growth looks good and there is a possibility that the company will reach breakeven on adjusted EBITDA soon. Nevertheless, taking into account the specifics of the business, it is important to realize that a substantial part of the company's cash outflow goes through capital expenditures, so the company, taking into account its growth plans, will be burning cash, which it has enough for the coming quarters. Even taking into account the possible buyback of shares, the decision on which will be made at the general meeting of shareholders in August, but about that later. During the quarter, the company spent $161.6 million on capital expenditures, which is significantly more than in 1Q24 ($39 million). The growth rate of CAPEX is understandable - the company wants to expand its data center in Finland as quickly as possible and is already working on launching a colocation data center facility in Paris (more on this in the section about Nebius AI). In total, free cash flow outflow to shareholders for the quarter amounted to $299 million. Taking into account the amount allocated for a possible share buyback, the company will have about $1.6 billion left for business development. If the current level of operating loss and capital expenditures is maintained, this cash will be enough for 5 quarters. However, the company is likely to raise capital through the private market. This is evidenced by the company's decision to qualify the company's shares received as part of the sale of Russian assets as available-for-sale, rather than treasury shares, which may speak in favor of their sale to outside investors. Well, at the moment it does not require payment of withholding tax, which I mentioned in my last article. The only question is at what minimum price this sale is possible and who will be the buyers. And there is no sense in hurrying to sell these securities, as the liquidity position is still decent, and we can wait for the growth of operating indicators. Now the most interesting thing is the possible resumption of trades in the company's shares on NASDAQ. In the press release, the company noted the following: The company has notified Nasdaq of its full divestment of its businesses in Russia and certain international markets and is now awaiting a response from the exchange. Although no timeframe for a possible response is specified, I now see no reason not to resume trading in the stock on NASDAQ, but the timing of the resumption is still unclear. Now let's move on to the news on individual segments. Nebius AI Nebius AI's highlights from the reports:  Nebius AI's cloud revenue for 2Q24 grew 60% QoQ, annual recurring revenue reached $80 million at the end of July, which is pretty good. The company has more than 30 managed customers, among which are some very big names - for example, Mistral AI (valued at $6 billion in the last round). Luma AI and JetBrains can also be highlighted. In 2Q24, the company started expanding its data center in Finland, which, according to the company's plans, will triple the company's capacity by the end of the first half of 2026. During the second quarter, the necessary construction permits were obtained, and hardware procurement has already started. The company also signed an agreement to lease a portion of a colocation data center in Paris. According to the company, this will increase the current capacity by 25%. The launch is expected in November this year.  In general, everything is going in a very good scenario, and the achievement of the company's goal of $200 million ARR looks very realistic with the possibility of surpassing this mark. I maintain my valuation of this segment at $1.28 billion or $6.43 per share. Toloka AI Toloka AI's highlights from the reports:  During the second quarter, the company rolled out large-scale Generative AI projects with global Big Tech companies. The company didn't release the exact revenue of the business but noted that GenAI project revenue accounted for 80 percent of Toloka AI's revenue. Quarter-over-quarter revenue grew 5x and year-over-year revenue grew 2x. The gross margin of the GenAI business of Toloka AI is in the mid-to-high forties, and the company expects this indicator to improve further.  On Toloka AI, things are also heading towards a positive growth scenario. Given the high demand for labeled data for training large language models, I expect this segment's business to continue to grow. As a reminder, my valuation of this segment is at $0.5 billion, which gives an additional $2.5 per Yandex N.V. share. TripleTen and Avride TripleTen's highlights from the reports:  TripleTen has not yet disclosed separate figures for its revenue. However, management noted that bookings representing the total value of anticipated payments from students who have made an initial payment for a course have grown fourfold YoY, positioning TripleTen to reach a run-rate bookings value of over USD 60 million by year-end. The fifth study track - Cybersecurity - was launched during the quarter.  As a result, I maintain my estimate of $221 million for this business or $1.1 per Yandex N.V. share. Avride's highlights from the reports: During the second quarter, the company worked on developing a next-generation platform for the company's autonomous cars and delivery robots and plans to expand its operating fleet based on these platforms and to add new models of cars and robots later in 2024. Let me remind you that the company doesn't make cars itself, but makes technology for autonomous driving. Previously, the main model for testing was the Hyundai Sonata. Perhaps the technology will be tested with another Hyundai model or the company will have a new partner from traditional automakers, which I rather doubt and expect that the partnership between Hyundai and Yandex N.V. will be strengthened. I suggest that the logical outcome, in this case, would be Hyundai's entry into the capital of Avride or Yandex N.V. as a whole, so Hyundai could be the first bidder to buy a portion of Yandex N.V. shares, which are classified as available-for-sale on its balance sheet. The company also noted that it is negotiating with several food and ridetech companies to broaden its commercial reach, aiming to scale operations within and outside the US market. As part of the planned new partnerships, Avride intends to integrate over a hundred additional robots into commercial delivery services by the year-end. This brings to mind Uber, with which the company had a ridesharing business in Russia, and Grubhub, with which the two companies worked together to deliver food to campuses in the US. Grubhub was bought by Dutch company Just Eat Takeaway in 2020. Uber and Just Eat Takeaway are other contenders for an equity stake in the company. Given the potential synergies, Avride's valuation when any of the companies mentioned above enter the Avride business could be significantly higher than my valuation of $109.8 million or $0.55 per share from my last article, but I'll keep my old valuation approach for now. That's it for now with the individual businesses. I'd also like to make a couple of other points on possible share buyback. Possible share buyback Let me remind you that one of the voting questions at the general meeting of shareholders on August 15 will be the question of authorizing the board of directors to authorize the company to buy back Yandex N.V. shares. The voting questions for the general meeting of shareholders on August 15 are presented in this file, where we are interested in item 14. Let's turn to the primary source to understand how this buyback may actually take place. This document states that the repurchase is planned to occur through a purchase on the Nasdaq Global Select Market (\"Nasdaq\") or otherwise. Nasdaq Global Select Market is the market where Yandex N.V.'s shares were traded before the trading halt in 2022. I think it is mentioned here for a reason, probably the buyout will be from the market after all. In my opinion, this is a very good decision (if it is made), as it will allow to buy back the securities at a good price for the company if there is a sell-off after the start of trading. The company plans to repurchase up to a maximum of 81,648,455 Class A Shares (equal to 50% of the outstanding Class A Shares as of the date of this Notice of Annual General Meeting). The exact buyback price is not specified, but it is stated that set with reference to the prevailing market price at the time of the announcement of a potential share repurchase, but in any case no lower than the nominal value of the Class A Shares and no higher than $10.50 per share This part says that the decision to repurchase will be announced only after the resumption of trading, otherwise, where will the market price come from? I think the probability that the buyback will be through the public market is quite high. At least, the interpretation presented above is clearly in favor of it. If the company manages to buy back 81.6 million shares at $10.5, it will have 117.4 million shares outstanding. If we take the $2.11 billion valuation for the company's operating business from my calculations from last week's article, then the fair value of Yandex N.V. would be $2.11 billion + $1.64 billion + $0.1 billion = $3.85 billion, which translates to $32.8 per share of Yandex N.V. The number of people willing to sell may be less than the amount of funds reserved for the buyout. However, it cannot be excluded that many funds have probably written off investments in Yandex N.V. on the balance sheet to zero long ago, as there were no trades. So even with the sale at $10.5 per share, they will be able to show a good profit. Let's wait for August 15 to get additional comments on the buyout following the shareholder meeting. Final thoughts  I view the company's earnings release positively. The company is growing well in terms of revenue and the potential for growth is still quite large. In terms of internal companies, quite positive information on the current business development was disclosed. Given the absence of changes in the forecast of key indicators for this year, I maintain my estimate of the company's business at $4.7 billion or $23.6 per share. 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