Yandex (YNDX) Beaten & Left for Dead

Yandex followed yesterday’s doom cycle with a dead cat bounce open at $30.48 followed by a rapid decline to $26.42 a share. They’re now worth around $8.7 billion.

The price then touched $28 a share & has since resumed declining, now at $26.63 a share.

I sold the biggest chunk I was holding at open & bought a bit more at $27.50 & $26.79. Both of which I sold at $27.99 as I saw the Russel 2000 turning lower.

I am still holding a small position I bought early into the slide which basically offset the just before close purchase & flip on open.

Yandex is in talks to sell up to 30% of their company to Sberbank, the largest bank in Russia, which is half-owned by their central bank.

So why the decline? Perhaps some investors are concerned over the possibility that Sberbank’s stake could mean potential dilution for existing shareholders — though a share issuance and subsequent buyback would be presumably a zero-sum game. Alternatively, you can’t help but wonder whether Yandex’s autonomy could suffer with a government-owned bank as its controlling stakeholder.

It is rare that a company would have a bidder interested in buying a 30% stake & then see their shares slide 30% in response to news leaking. Ahead of the Yandex IPO they gave Sberbank a golden ticket:

Since 2009, Sberbank has held a priority share in Yandex which was purchased for a symbolic €1. From the company’s publicly available documents, it appears that this priority share gives Sberbank the right to block the purchase of more than 25% of Yandex’s shareholders’ equity and/or votes by any of the company’s shareholders or a third party. A similar right exists regarding the sale of a stake larger than 25% to a third party. However, the golden share does not give Sberbank the right to influence operational decisions, nor does it give it additional dividends.

In May of 2011 Yandex priced their IPO at $25, raising $1.3 billion. On the day of the IPO their stock closed up 55% at $38.84.

Think of how much QE has been done globally since 2011 & what impact it has had on asset prices. Think of how much web usage has grown since 2011 with the rise of mobile.

Russian regulators were the first to fine Google for their mobile OS bundling, which has lifted Yandex’s share of search across the country.

And yet in over 7 years Yandex has went literally nowhere. That is how terrible the Russian economy has been.

Now that QE is running in reverse, Uber & Lyft are racing to IPO before this cycle turns.

When Uber did a deal to merge their Russian operations into Yandex.Taxi Uber put in $225 million and folded their local operations into the company to get a 36.9% stake at a valuation of $3.8 billion.

The current sky high whisper numbers for Lyft & Uber significantly increase the value of Yandex.Taxi (at least until the ride sharing meme fully goes public with no bid & craters).

The Uber Technologies IPO and record-high valuation is a “positive signal for Yandex.Taxi”, BCS Global Markets commented on October 17, noting that the price of Uber’s IPO could serve as a future benchmark for Yandex.Taxi valuation. Even the current $70bn valuation of Uber would imply a 30% premium for the Yandex-Uber deal in Russia.

If $70 billion is a 30% premium then $120 billion would be closer to something like a 100% premium. This would value the 59.3% Yandex stake in the future taxi spin off at something between $2.9 and $4.5 billion.

With Yandex trading at under a $9 billion market cap that would mean their stake in the taxi business would be imputed as being worth somewhere from 1/3 to 1/2 of their market cap. Given they have nearly $1 billion on their balance sheet & they announced a $100 million buyback authorization in June when the stock was around $34 or $35 there shouldn’t be a whole lot of downside at $26.70 a share.

They announce earnings in 10 days, where they’ll likely announce faster than typical growth due to the impacts of rising oil prices coupled with a weak currency juicing the domestic economy. They might launch another round of buybacks after earnings, there’s the potential minority investment, and the taxi service spin out all as potential catalysts.

Overall market sentiment is quite ugly today with both the Nasdaq & Russell 2000 dropping. On Wednesday Yandex was trading at $35.88 & now they are under $27 on massive trade volume that’s about 7x what it has been recently.

I just bought a few more shares at $26.55. I view it more as a trade than a long-term investment though, as we are late cycle with lots of unprofitable garbage bid up & all the sort of late cycle cringeworthy headlines.

Added: I think the bottom is in on Yandex & there was a sell the rumor, buy the news incident. In addition to the Sberbank narrative where there were fears of Putin controlling the company (as Putin visited the company last month), there was another story.

This is the second time it traded down extremely bad this year. The first time it traded like it has the past couple days was when US sanctions against Russia were announced late in afternoon trade (though the sell off started long before the sanctions were announced). The August 8 sanctions were related to the poisoning of Sergei V. Skripal.

The Trump administration agreed with the determination by the British government that set in motion the sanctions. The legislation requires that sanctions be put in place within 60 days, and Representative Ed Royce, Republican of California and the chairman of the House Foreign Relations Committee, sent a letter to President Trump two weeks ago chiding the administration for missing it.

The U.S. is suffering from a lack of faith in institutions. It is suffering nowhere near as bad as Russia is, of course, but it is suffering nonetheless.

The tech companies which avoided meaningful regulation while accumulating power were cheered as savvy for helping president Obama get elected twice, but when president Trump was elected people came out of the woodwork over the damage the tech companies are doing to society. When it was later discovered how many entities were pushing polarized fake storylines that were aligned with the “relevancy” algorithms that didn’t help people who felt they “lost” the election & have been left behind in the financial asset inflation led recovery.

 Saying there’s no comparison to the current period would be a gross understatement. Historically, the Fed has initiated easy money policy only as an emergency stimulus, either during or shortly after a recession. When clear signs of expansion took hold – and an emergency measure was no longer necessary – the Fed would begin to normalize rates. In the current cycle, this simply did not happen. The recession ended in June 2009 but the Fed held off from hiking rates until December 2015. Until last month, they were acting as if emergency measures were still necessary.

Just ahead of U.S. midterm elections this afternoon the U.S charged a Russian with trying to influence the midterm elections. After that headline came out Yandex shares were up about a dollar. I sold the recently purchased shares on the upward momentum as the last time there were sanctions announced it was frustrating as I was stuck as the bagholder on that for a while. I eventually sold out that prior position at a loss and stopped trading for a few days to regather my thoughts & focus more on web stuff. I didn’t want to hold a giant Yandex position over the weekend while my daughter is sick. I need a clear head to do well in the markets. My current Yandex position size is rather tiny & it is certainly down less than what I gained from the opening bell flip & the couple Yandex momentum trades throughout the day today.

Russia has been hoarding gold & dumped their US treasuries.

There still are a handful of narratives which can drive Yandex higher, but the only way to not get frustrated by such volatility as there was over the past couple days is to have reasonable position sizing.

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