Perhaps most non-Russian investors will recognize Yandex NV (NASDAQ: YNDX ) as one of the few Russia-based investments that hasn't tanked. With a year-to-date performance of 56%, Yandex stock is what most contrarians were hoping for, given President Donald Trump's friendly overtures. Recently, though, YNDX is notable for another, politically unrelated accomplishment - taming the wild beast that is Uber .
The ride-sharing app is both famous and infamous for its extraordinary convenience. Riders love it, but traditional taxi cab companies detest it.
But what really put Uber on the map was its "bro culture," starting from the very top. Former Uber CEO Travis Kalanick , a 40-year old going on 14, was involved in several controversies in his company. With his resignation came one more acquiescence - Uber could not handle YNDX.
On July 13, Uber revealed that it formed a partnership with Yandex, the Russian version of Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ). Though the American ride-sharing company tried to force its will on the Russian market, YNDX would not budge an inch. Uber decided that a partnership, rather than an outright battle, was better for growth prospects.
According to The New York Times , the deal - which is still pending regulatory approval - involves pooling the two parties' ride-sharing businesses under a separate company. The approximate valuation of this new entity is $3.4 billion, and YNDX executive Tigran Khudaverdyan will head the firm.
On announcement day, Yandex stock closed up nearly 16% over the prior session. The deal puts an end to three years of costly fighting with Uber. However, YNDX shares have gone sideways since the favorable disclosure. With earnings just around the corner, does the Russian Google have further growth opportunities?
YNDX Stock Due for Another Earnings Beat
From a financial perspective, YNDX stock is riding a strong wave of momentum. Since the beginning of fiscal 2015, Yandex has only missed its earnings per share target twice, both in the fourth quarter. On average, its beats register a positive surprise of more than 20%. Investors are loving the performance, and the Uber deal only makes them more enthusiastic.
For its upcoming Q2 report, analysts peg Yandex stock to hit an EPS of $12.22. The estimate sits right in the middle of the forecast spectrum, which calls for a range between $12.10 and $12.34. In the prior year Q2, consensus was $9.33, while the actual was $11.95, leading to a 28% positive surprise. This also happened to be the second-biggest beat of FY 2016.
On the revenue side, analysts are expecting YNDX to haul in $378.3 million. In the year-ago quarter, consensus was pegged at $275.4 million. Although the more than 37% year-over-year increase appears overly ambitious, it's not out of the realm of possibility.
Over the past seven years, revenue growth for Yandex stock averaged almost 37%. While this bullishness was largely accrued during the company's infancy stage, sales growth is still strong. For example, in the past six quarters, YNDX averaged 26.5% YoY.
Overall, YNDX stock has a solid chance of beating EPS estimates, given its earnings momentum and its top-line trend. Also, I fully expect the Russians to do their song and dance, and play up their guidance. With the Uber deal making headlines, Yandex has every right to turn on the charm.
Russia Is Not a Great Place for Business
That said, if you're reading about something on the news, the ability to exploit the information has long passed. To buy into Yandex stock on the basis that the Russian company beat Uber would be a big mistake.
Unfortunately, you can take the stock out of Russia, but you can't take the Russian out of the stock. Although YNDX is hardly related to its country's various conflicts, the conflicts themselves are taking a toll on the citizenry. Russian ADRs like Sberbank Rossii PAO - ADR (OTCMKTS: SBRCY ) and Mobil'nye Telesistemy PAO (ADR) (NYSE: MBT ) are hurting because of the declining middle class. That's a headwind that may not be reflected yet with Yandex stock.
I've visited multiple eastern European cities, and the one common theme uniting them all is excellent transportation infrastructures. Why take a cab in notoriously hectic roads when you can take the metro virtually anywhere in the city? Plus, eastern European metros are cheap and quick, and are the preferred mode of transportation among the locals.
Where Yandex could see a boost in ride-sharing revenues is in tourism. The only problem? Who wants to go to Russia? If flights to Europe are being gutted in price , probably due to fears of open borders and terrorism, I can guarantee you that Russia is no better. In addition, many Russians do not tolerate darker-skinned foreigners.
With the promise of a new era in U.S.-Russia relations gone wanting, I'm not a fan of YNDX stock. They have the goods to deliver an earnings beat in Q2. Beyond that, it's anyone's guess.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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