Created by Rahul MadhuMukundh BalasubramanianFebruary 11th, 2014

Yandex NV [NASDAQ: YNDX]

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Agenda

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Business Overview

Thesis Points

Misperception

Catalyst

Risk

VAR

Recommendation2

Yandex NV is the largest internet company based in Europe

4th largest search engine worldwide

Controls significant market search in Russia, Ukraine, Kazakhstan, and

Belarus.

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uteBusiness Overview

3Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

RUSSIA: Moscow, St. Petersburg, Rostov-on-Don, Ekaterinburg, Kazan, NovosibirskUKRAINE: Kiev, Odessa, SimferopolBELARUS: MinskUSA: Palo AltoTURKEY: IstanbulSWITZERLAND: Lucerne, Zurich

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uteBusiness Overview

4Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

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Segmental Breakdown

5Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

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uteFinancial Overview

Price $40.17 T P/E (ttm) 32.63 Op Margin 43%Market Cap $13.09B PEG 1.22 Beta 2.81

52w Range 19.93-45.42

Gross margin

74.8%

6Business Overview Thesis Points Misperception Catalyst Risks Valuation Recommendation

Future growth opportunity in CIS countries

Ability to distinguish between inflections

Diversified Service

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uteThesis Points

7Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

• 274.4 Million [2013]• Low internet penetration• Majority of the countries still uses

the Cyrillic alphabets

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Growth Potential is strong in CIS Countries

8Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

More 252 million people in Eurasia use the Cyrillic Script

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Cyrillic Use Prevalent in Eurasia

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Bulgaria, Bosnia and Herzegovina, Belarus, Kazakhstan, Kyrgyzstan, Macedonia, Mongolia, Montenegro, Russia, Serbia, Tajikistan, Ukraine

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

According to the International telecommunication agency, the internet penetration rate in CIS is only 51.9% compared to 74% in Europe [2013]

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Low Internet Penetration in CIS

Countries

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Russia 53.3%

Ukraine 33.7%

Uzbekistan 36.5%

Kazakhstan 53.3%

Belarus 46.9%

Azerbaijan 54.2%

Tajikistan 14.5%

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

Modification of a word in order to express a particular grammatical categories

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Inflection Use is a Competitive Advantage

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tense, person, number, gender, mood, voice, and case

Sailor – in “Russian”моряк (nominative) морякa (accusative)

морякa (genitive) моряком (instrumental)

моряку (dative) моряке (prepositional)

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

“There’s more idiomatic usage on Yandex’s website than through Google Translate.” –Joe K

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Hangout Docs Calendar Google Cloud Print

Groups Google Chrome

Alerts Panoramio

Code Sites Translate Google Keep Blogger News Picasa Maps

Mobile Services

Books Youtube Blog Search News Gmail

Browser Statistics Flights Auto Poster Video Time Pictures Cards Catalog

News Translation Weather SearchBlog Search Corks Dictionaries Timetables Directory Taxi

My Circle Mail Photos Ya.ru Mobile Work Webmaster Metric Network Advertising

People's Map Real estate Disk Calendar Music Money Yandex.XML Market Telecast

Strong Diversification Provides Complete

Experience

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

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uteYandex.Map

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Powered by NAVTEQ Maps

300 cities and towns across Russia, Ukraine, Belarus, Kazakhstan and Turkey with extensive POI data

Panoramic street view images of over 230 cities

Route planner with real-time traffic alerts

Offline capabilities

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

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uteYandex.Map

14Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

“Yandex’s maps and navigator are way better than Google or Apple.” –Sergey Libin, Senior VP Equity Research, Raiffeisenbank

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uteYandex.Money

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• Leading e-commerce payment system• Venture with largest state-owned bank in

Russia• Sberbank [75% - 1]• Yandex [25% + 1]

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

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uteYandex E-Commerce

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Yandex recently signed an agreement with MultiShip

Purchased software platform for $1M

“The biggest obstacles to the spread of e-commerce are problems with logistics and

delivery” – Alexey Avdey, Head of Yandex.Market

Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

Misperception

17Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

Everyone assumes that google dominates the international market• Yandex (Russia)• Baidu (China)• Nevar (South Korea) M

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Catalysts

18Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

Growth potential in Turkey• It is part of the Turkic • Mapping services

Cultural Animosity towards in West in CIS countries and

West

NSA collecting information

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Risks

19Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

Geopolitical issues

Increased competition from google

Macro and FX risks M

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DCF Analysis

20Business Overview Thesis Points Misperception Catalyst Risk Valuation Recommendation

Enterprise value $58,546.62

subtract: debt

16,960

add: excess cash 2,912

Equity value $44,498.62

divide: # of shares outstanding 908.5

Targetted stock price $48.98

WACC

D/E Ratio 0

Return Weights

Debt 0 0

Equity 27.00% 1

Beta 2.81

Risk-free rate 8.500%

Market risk premium 20.00%

WACC 27.00%

2013A 2014 2015 2016 2017 2018Operating Cash Flow

Revenue 36,235

46,381

59,367

75,990

97,268

124,503

COGS 9,141

10,973

14,045

17,977

23,011

29,454

R&D 5,291

6,957

8,905

11,399

14,590

18,675

SGA 6,215

7,627

9,762

12,496

15,994

20,473

EBITDA 15,588

20,824

26,655

34,119

43,672

55,900

EBITDA*(1-T) 12,470

20,824

26,655

34,119

43,672

55,900

DA

OCF 12,470

20,824

26,655

34,119

43,672

55,900

ONWC

Operating Current Assets 18,191

Operating Current Liabilities 6,682

OWNC 11,509

18,552

23,747

30,396

38,907

49,801

Change 1,154

7,043

5,195

6,649

8,511

10,894

CapEx 4,271

6,193

8,980

13,021

18,880

27,376

Free Cash Flow 7,045

7,588

12,481

14,449

16,281

17,630

Terminal value 86,511

Sum of FCFs 7,045

7,588

12,481

14,449

16,281

104,141

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Sensitivity Analysis

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WACC

Terminal Growth Rate

26.0% 26.5% 27.0% 27.5% 28.0%

6.5% $54.36 $52.47 $50.67 $48.96 $47.33

6.0% $53.38 $51.55 $49.81 $48.15 $46.57

5.5% $52.44 $50.67 $48.98 $47.37 $45.84

5.0% $51.54 $49.83 $48.19 $46.63 $45.14

4.5% $50.69 $49.03 $47.44 $45.92 $44.47

WACC

Terminal Growth Rate

26.0% 26.5% 27.0% 27.5% 28.0%

6.5% 35.3% 30.6% 26.1% 21.9% 17.8%

6.0% 32.9% 28.3% 24.0% 19.9% 15.9%

5.5% 30.5% 26.1% 21.9% 17.9% 14.1%

5.0% 28.3% 24.0% 20.0% 16.1% 12.4%

4.5% 26.2% 22.0% 18.1% 14.3% 10.7%

RecommendationDue to its strong growth opportunity in the CIS countries, firm competitive advantage in inflections and language usage, and diversified services, we recommend MII initiate a 5.5% long

position.

22Business Overview Thesis Points Misperception Catalyst Risk VAR Recommendation

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