Yandex N.V: Pressure Under Sanctions and Semiconductor Shortages

Yandex N.V NASDAQ: YNDX has caught the ire of the West in response to Russia's invasion of Ukraine. After being accused of suppressing free speech and spreading misinformation about conflict, Yandex's second in command, Tigran Khudaverdyan was sanctioned and has since stepped down from his position. The company now is attempting to reduce exposure from potential sanctions placed upon it and that of its employees, which includes selling off divisions of its businesses to state-controlled organizations such as VK, which controls Russia's largest social network. Yandex's trading on the NASDAQ has been halted since February 28, pending "further information" from the company. However, the stock is still being traded on overseas OTC markets and the Moscow stock exchange. 

Yandex’s Uncertain Q1 FY 2022 Outlook

The company’s shares slipped in Q1 as Yandex withdrew its guidance for the rest of the year following the commencement of Russia’s invasion. The company also recorded steep losses in its earnings. Yandex reported a net loss of RUB 8.12B, which compared unfavorably to its last quarter’s positive earnings of RUB 3B. The company’s operating expenses also grew 61% YoY due to an increased headcount and one-off personnel expenditures. Although trading on the NASDAQ is currently halted, the company is currently down 63.90% YTD and 77.25% below the MarketBeat consensus price target.

If Yandex is indeed relisted the business faces a number of headwinds that will contribute to selling pressure for its shares. These headwinds include soaring inflation, a sector rotation out of technology stocks, and investors’ severely curbed risk appetites.  

Yandex Faces Shortages with Semiconductors

Adding to the mounting pressure on the stock, Yandex is running out of semiconductors due to sanctions and the crippled supply chain flowing into Russia. Semiconductors are used in the assembly of its servers, which are pieces of critical infrastructure for its operating segments. Yandex is set to run out of semiconductors within a year or 18 months if alternative suppliers cannot be found. This in turn would mean it’s able to grow or maintain its advertising revenue, which contributes the most to the company’s top and bottom lines. One alternative source of components for Russia could be found in China, but the US commerce secretary has stated that it would disable the software that these components rely on if China decided to export them to Russia, leaving the company with few options.

Russia Mounts Pressure on Overseas Bondholders

In response to western sanctions, the Kremlin has hit back at overseas investors by proposing a law change to make it illegal for them to invest in bonds issued by Russian companies. If this law is passed, Yandex will be forced to redeem $1.25B in convertible bonds, which the company stated that it does not have the resources to do. Investors could then be left with paying high cancellation fees to banks per bond receipt.

Yandex’s Technical Outlook 

The chart below was taken from the Moscow stock exchange, which closed for roughly a week after the invasion commenced. The Kremlin closed the MOEX in order to prevent a catastrophic crash in the shares traded there.

Yandex experienced a steep sell-off in the days prior to the exchange’s closure with record-breaking volumes on the red as well as the green candles. Since then, volumes have been at anemic levels and the stock has consolidated sideways. It should be noted that at any moment the West could place additional sanctions on executives at the company or set its crosshairs on the company itself. This situation could become a reality as it’s being accused of being an apparatus of the state’s propaganda machine.

If the stock resumes trading on the NASDAQ it’s possible that it will fall to all-time lows, partially as retaliation for Russia’s aggression and the risk that the company presents to investors moving forward.