Nathaniel Rabin

Value Catalysts  Extremely rapid growth of internet use in Russia will lead to more online advertising  Deeply discounted when compared to competitors at similar development stages  Major competitive advantages will keep Google from penetrating Yandex’s 60% market share, downside already priced in

Company Overview  Largest Russian search engine  Generates revenue from text-based and display advertising on own content, as well as revenue from partner websites  Includes search, news, shopping, maps, video, and functions for users  ~97% of revenue comes from Russia, with additional operations in Belarus, Ukraine, Kazakhstan and Turkey

Features For UsersFor Advertisers/businesses Yandex.SearchYandex.Direct Yandex HomepageYandex.Spravochnik Yandex.NewsYandex.Webmaster Yandex.MarketYandex.Metrica Yandex.Mail Yandex.Traffic Yandex.Browser Yandex.Drive Yandex.Music Source: 10k

Internet Use in Russia  44.3 million daily internet users in 2011 (increase of 22% from 2010)  ~60 million monthly internet users (51%) of adult population  Monthly internet users projected to rise to 71% by end of 2014  Internet use concentrated in “European” Russia, municipal areas, but spreading outward  Online shopping volume increased 30% from Sources: Moscow News article, Public Opinion Foundation report

Recent Developments  Yandex.browser  Mobile app store for Android devices  Partnership with AAPL  Acquisition of SPB Software

Market share strength  Decline in share price mostly as a result of market share decrease from 65%(IPO) to 60.4% (current)  Higher share of Chrome searches than Google  Yandex has been able to retain large market share because of understanding of the nuances of Russian language and alphabet  Yandex code tracks IP address, uses local dialect to help with search  Yandex’s advantage over Google will only increase as internet use spreads to more remote parts of Russia  Internet use growing at such a fast rate that a decline in market share to 50-55% would not hurt Yandex too much

Quick Stats - Share Price: $ Market Cap:$8,030.2mm - Total Enterprise Value: $7,661.6mm - LTM P/E: 37.8x - Forward P/E: 30.4x - EV/EBITDA: 23.4x

Historical Stock Price Source: Capital IQ

Q2 Results  Revenues of $207.2mm (+50% Y/Y)  EBIT of $68.4mm (+63% Y/Y)  Net Income of $60.4mm (+76% Y/Y)  60.4% share of Russian search market  46% of Chrome searches (more than Google)  Total search queries up 30% Y/Y  Number of advertisers: >193,00 (+8% from Q1)  Q2 revenue breakdown: 72% text-based advertisements, Yandex content 17% text-based advertisements, partner websites 9% display advertisements 2% online payment commissions Source: 8k

Financials  LTM revenue: $748.3mm Y/Y rev. growth: 32.9%  LTM EBITDA: $327.2mm Y/Y EBITDA growth: 28.7% EBITDA margin: 43.7%  LTM Net Income: $217.9mm Y/Y income growth: 43.3% Net margin: 29.1% - Total Cash and ST investments: $367.8mm - Total debt: $0.0 Source: Capital IQ

Margin Comparison Gross Margin EBITDA Margin EBIT Margin Net Margin FB74.0%24.2%13.8%13.3% BIDU79.5%57.3%51.3%46.8% GOOG63.2%35.8%30.8%25.7% LNKD85.9%12.6%5.4%1.8% MAIL75.5%44.7%29.4%128.0% EBAY69.9%28.9%20.3%28.7% YNDX75.1%43.7%33.7%29.1% Source: Capital IQ

YNDX vs. GOOG vs. BIDU historical trading multiples  Ignore current multiple comparisons; YNDX is a growth play and trades at such. However, YNDX is still fundamentally undervalued when compared to its two closest peers at stages of development similar to where YNDX is now. YNDX (Current) BIDU (2009)GOOG (2004) EV/Rev x16.05x EV/EBITDA23.42x41.92x59.99x P/E37.85x58.51x186.64x Source: Capital IQ

Bonus Catalysts – Huge Upside  Proprietary browser  Safari mobile default browser?  Expansion into other markets (Turkey)  Growing use of smartphones in Russia

Risk Factors  Significant loss of market share to Google  European economic downturn could lead to decrease in consumption, advertising spending  Political/legal risk “Businesses in Russia, especially high-profile companies, may be subject to aggressive application of contradictory or ambiguous laws or regulations, or to politically motivated actions, which could materially adversely affect our business, financial condition, and results of operations.”

Conclusion  Long YNDX because: Market share will not shrink much further, due to Yandex’s superior code and understanding of Russian, downside already priced in “Next Google” unlikely, “next Baidu” far more realistic, still represents huge upside – trading at a lower multiple than Baidu was at similar stage Online advertising spending in Russia will catch up to exploding internet use Huge potential upside with recently released products/services