Yandex (YNDX) is up big today (+14%) on news that it has reached an agreement with Uber to combine their ridesharing businesses in Russia, Kazakhstan, Azerbaijan, Armenia, Belarus and Georgia into a new company.
Since you're probably not familiar with Yandex, a little background would help. Yandex, based in Moscow, operates Russia's most popular search engine with a Russian market share larger than Google. Yandex generates almost all of its revenue from advertising, both from Yandex websites and from its ad network.
Besides search, other digital services include e-commerce (Yandex Market), taxi (Yandex.Taxi) and classifieds (Auto.ru, Yandex Realty, Yandex Jobs, Yandex Travel). It also provides mail, map, news, online payments etc. Most of its business is in Russia, but it also serves Ukraine, Belarus, Kazakhstan and Turkey. Yandex launched its IPO in May 2011.
Turning to today's news, Yandex and Uber are teaming up to combine their ridesharing businesses in Russia, Kazakhstan, Azerbaijan, Armenia, Belarus and Georgia. Uber will also contribute its UberEATS business in the region to new company. In addition, Uber has agreed to invest $225 mln and Yandex has agreed to invest $100 mln into the new company, valuing it at $3.725Bn on a post-money basis. After these investments, the new company will be owned approximately 59.3% by Yandex, 36.6% by Uber, and 4.1% by employees.
Tigran Khudaverdyan, currently the CEO of Yandex.Taxi, will become CEO of the combined business. The idea is that the new company will draw on the strengths of Yandex, the search, maps and navigation leader in the region, and Uber, the global ridesharing leader, to develop a fast-growing, sustainable business that best serves the needs of riders, drivers and cities.
Consumers will be able to use both Yandex and Uber apps while the driver-side apps will be integrated, leading to shorter passenger wait times, increased driver utilization rates, and higher service reliability. The deal should allow Yandex's to offer better quality service to riders and drivers and to quickly expand into new regions.
Since founding Yandex.Taxi in 2011, it has connected tens of millions of riders and drivers to become the largest ridesharing business in Russia and neighboring countries. The boards of directors of both Uber and Yandex have approved the transaction which is expected to close in 4Q17.
It has been a good few months for Yandex as this deal follows on the heels of its settlement with Google (GOOG) in late April. Google had required handset makers in Russia to pre-load their devices with Google apps in order to also gain access the Google Play Store. The dispute had been going on for two years. The settlement opens up its Android platform in Russia. Now millions of Russian Android users will be offered a choice of search engines on their mobile devices.
In sum, Yandex's deal with Uber looks like a win-win: both the combination of services and the large influx of cash to build the new company up. It's probably smart for Uber as well as it is able to partner with a local technology company that knows the Russian market well. With the Uber deal and the recent settlement with Google, Yandex has had a few good months and the stock price has reflected that (+44% since mid-April). Note: Yandex will report Q2 results on July 28 and it's likely the Uber deal will be a big focus on the call.