Yandex’s various revenue streams insulate it against potential adverse impacts of the lockdowns that came into effect in some regions of Russia on October 28, according to Sova Capital’s Head of Research Mikhail Terentiev and Analyst Oksana Mustiatsa, who emphasised the utility of this diversified model following the company’s 3Q21 results call.
Yandex builds intelligent products powered by machine learning. From a taxi app and a search engine to restaurant delivery and autonomous driving technology, it provides over 70 different products and services. Most recently, Yandex has announced a partnership with the Russian Post, which will begin using Yandex’s autonomous rovers to deliver mail in Moscow.
Ride-hailing service Yandex.Taxi is one area where the company is confident it can improve profitability this year and beyond. And Sova, which maintains a “buy” recommendation on the stock, agrees. “The profitability of YNDX’s ride-hailing business should improve YoY in 2021,” Sova analysts wrote in a recent note.
Growth in Yandex’s ultrafast grocery delivery service Yandex.Lavka, meanwhile, looks promising. Yandex.Lavka has begun expanding into international markets under the name Yango Deli, with operations in Israel and Europe. Earlier this month it launched delivery services in London, operating from four dark stores in the British capital. “YNDX expects Yandex.Lavka’s adjusted EBITDA to turn positive post-overheads within the next nine months,” the note says.
The results call also suggests room for growth in the company’s online marketplace Yandex.Market. “The utilization of Yandex.Market’s warehouses should increase going forward. The reason why YNDX is currently seeing a relative underutilization of its infrastructure vs. its original plan is due to the faster-than-expected adoption of the Drop-Ship-By-Seller (DBS) model (30% of Yandex.Market’s GMV by the end of 3Q21),” according to Sova.
The DBS model is a form of supply chain management in which a seller – in this case Yandex.Market – passes orders on to a manufacturer or another retailer to ship. This means that not all goods displayed on the site need to be kept in stock, reducing the need for warehouses. The note highlights the success of this model to date: “The company noted that DBS is profitable from day one, allowing YNDX to quickly expand its assortment. Utilization should increase over time, although some residual adverse effects could be seen in 4Q21 as well.”
Yandex.Market is also working on quicker onboarding, different delivery options, and new advertising products. The share of advertising revenue reached 1.9% of Yandex.Market’s GMV in 3Q21, according to Sova.
Yandex.Delivery, a logistics service which is part of the company’s e-commerce expansion, also has potential, according to Sova. “The business model is asset-light and very similar to YNDX’s ride-hailing business. Logistics could be even lighter on the cost side, as there is no need to deal with customer incentives as in ride-hailing,” the analysts wrote.
The new wave of lockdowns could bring some adverse effects but some positives may come as well, the analysts said. “Ads and ride-hailing could face some pressures, but the company’s e-grocery, food delivery, e-commerce and streaming services should see some improvements during the lockdowns,” according to Sova.
The company’s new guidance for ride-hailing (GMV to increase in the range of 65-70% YoY in 2021 vs. the previous guidance of 60% YoY) includes some impact from COVID-19 as well. Yandex doesn’t see short lockdowns impacting ads.
The pandemic has taught that the unpredictable often does happen. So its duration and other possible developments should be taken into account when predicting company performance. Yet it appears to Sova that Yandex will be able to take a short lockdown in stride.