Yandex (NASDAQ: YNDX) is the leader in Russian online internet search market with 60% market share in overall Russian search and 45% market share in online advertising. The company is seeing secular growth in the online search space due to increasing broadband penetration and the offline to online trend. We believe that YNDX, with its projected 35% EPS CAGR in 2013 and experienced management team, is an optimal way to play this growth. Google (NASDAQ: GOOG), also a Tiger Global holding, is the second largest player in this market with 26.2% market share, and Mail.ru rounds out the top three with 8.2% market share. YNDX’s overall market share is quite steady around the 60%, with a three-month average of 59.9%. Its Google Chrome share is also stable at 45.5% with a three-month average of 44.1%. Note that Opera is actually the dominant player in the Russian browser market. YNDX’s search volumes are also quite strong with search volumes up 36% y-o-y and 13% q-o-q last quarter. It’s true that total advertisers grew minimally (3% q-o-q), but we attribute this to seasonality and believe that the rollout of a Real-Time Bidding platform will support upcoming quarterly numbers. With search & portal peers trading at 23.1x 2012 EV/EBITDA and 12.1x 2013 EV/EBITDA and eCommerce peers trading at 19.1x 2012 EV/EBITDA and 12.8x 2013 EV/EBITDA, we view YNDX as attractively valued. YNDX currently trades at ~13.9x 2012 EV/EBITDA and ~11.6x 2012 EV/EBITDA. We add that Mail.ru is an interesting opportunity that may warrant additional research. It trades at ~10.2x 2012 EV/EBITDA and ~8.2x 2013 EV/EBITDA but has comparable short-term growth prospects to YNDX and a diversified business model. Its discount to YNDX does not seem rational.
Apple (NASDAQ: AAPL) We view the recent pullback in AAPL shares as an opportunity for investors. We believe Apple will consistently deliver topline and EPS growth for a number of years. The stock has several upcoming catalysts that will propel the stock back into the $600 range and perhaps even into the $700 range. For one, the much anticipated iPhone 5 is scheduled to launch this Fall, which we expect will be more successful than the 4S launch. There will also be a Macbook refresh in either Q2 or Q3. And finally, the introduction of the iTV, which lacks proven profit making ability but makes up for it in immense potential. Strong iPad sales have not hurt either. The iTV is another step in building out AAPL’s ecosystem, which is where the value lies. With a huge cash balance and multiple catalysts coming up, we think these will continue AAPL’s revenue acceleration. In addition to product rollouts, we believe increasing emerging markets penetration and a foray into the enterprise markets will drive profitability. Apple was the most popular stock among hedge funds at the end of March (see the 10 most popular stocks).
Liberty Global (NASDAQ: LBTYA) After the disposal of Austar, LBTYA has emerged as a relatively pure European cable investment. The primary non-European asset is Chile; compare this to 2009 when close to 25% of the company’s enterprise value was derived outside of Europe. LBTYA is currently on track to generate 4% revenue CAGR and a 6% operating cash flow CAGR over the next few years, which are strong numbers relative to its peers in the European telecom market. As demand increases for faster broadband speed and data consumption grows, we are very positive on LBTYA’s ability to take market share and scale its presence in the region. According to management, there is a place for mobile in the company’s product portfolio, but it seems there is limited interest in cable operators developing the kind of infrastructure that mobile network operators currently have. We think this is a reasonable stance as long as LBTYA is able to maintain its competitive advantage in broadband. And though the Senate’s approval of amendments to the Dutch Telecoms Act and Dutch Media Act may serve as a headwind on the stock, we are not too concerned of a negative impact to LBTYA. Hedge fund managers Philippe Laffont and Eric Mindich initiated brand new positions in Liberty Global during the first quarter.
