Background
The spin-off of the Russian and part of the international business from Yandex N.V. (NASDAQ:YNDX) was completed this week, allowing Yandex N.V. to focus on the development of the remaining businesses, primarily Nebius AI’s cloud business. Yandex N.V. also plans to rename the company to Nebius Group. YNDX’s shareholders are expected to vote on these and a number of other issues at the AGM, which will be held on August 15. A complete list of the voting questions can be found in this press release. Since trading in the company’s shares on the NASDAQ is still halted, and it’s unclear how quickly trading can resume, let’s look at how much the company’s remaining business might be worth. Given the fact that there is not much public data on Yandex N.V.’s business and the businesses left by Yandex N.V. are very diverse, the best solution for valuing the company, in my opinion, would be a sum of the parts valuation. Let’s dive in.
Nebius AI
The core and main part of Yandex N.V.’s business will be Nebius AI, whose business is focused on Infrastructure-as-a-Service (IaaS) and, in particular, the GPU-as-a-Service, which has gained popularity over the past year due to the rapid growth of generative AI market. Betting on this market is not done by chance. The global compound annual growth rate of this market from 2016 to 2024 was 33%, and it is expected to be valued at $176.5 billion in 2024, with a further annual growth rate of 19% projected through 2029. The GPU-as-a-service market will grow even faster, from $3.2 billion (in 2023) to $50 billion by 2032 (CAGR 35%).
To value Nebius AI, there are no fully identical publicly traded peers whose businesses are focused solely on IaaS. Therefore, the best option would be to use two approaches to value the company. First, I used technology companies such as Amazon, Alphabet, Microsoft, Oracle, and IBM, which are currently leaders in the IaaS segment but whose core businesses focus on other areas.
The mentioned above companies are trading at an average of 7.4x 2024 revenues. Let’s use this multiple as a baseline. Although Nebius AI’s profitability is clearly worse than these firms, Nebius is still growing, I expect significantly faster than Bigtech, so I see no reason not to use this multiple. So far, Yandex N.V. has not disclosed the details of revenue separately for each of the businesses but noted that in 6-9 months, Nebius AI could reach ARR (annual recurring revenue) of $200 million. With these inputs, the valuation of Nebius AI is $1.48 billion.
Meanwhile, among the private companies, there are direct competitors with identical businesses, specifically CoreWeave and Lambda Labs. CoreWeave is currently the largest private company in this segment of the cloud market. It is actively raising both equity and debt capital and has built at least 14 data centers in the US. Its most recent round in May of this year valued the company at $19 billion, with revenues expected to be at least $2.3 billion this year (an EV/S’24 multiple of 8.3x). Lambda Labs was valued at $1.5 billion in February 2024 with expected revenues of $600 million through 2024 (EV/S’24 2.5x). Using the average multiple between these companies of 5.4x, we get a valuation of $1.08 billion. This is more of a lower bound on Nebius AI’s valuation. I estimate that the data center in Finland alone is worth at least $500 million, excluding the GPUs that are housed there. As a result, for the Nebius AI valuation, I took the average of these two valuations, $1.28 billion, which, taking into account the remaining 199 million shares of Yandex N.V., gives us a valuation of $6.43 per share.
Toloka AI
Toloka AI is a data partner for all stages of AI development from training to evaluation. The potential market for this business is estimated at $2 billion and is expected to grow at a CAGR of 40% over the next 5 years. The lion’s share of this market is now going to Scale AI. Without disclosing more details, it is not yet clear exactly how Toloka AI is doing in terms of revenue. The company only noted that Toloka’s Generative AI offering is forecasted to grow multiple times this year, becoming Toloka’s major source of revenue.
To get some guidance on the valuation of this business, let’s turn to non-public peers. Besides the aforementioned Scale AI, two other players in the sector are Labelbox and Snorkel AI. Scale AI was valued at $13.8 billion in its last round in May 2024 (with expected revenue through 2024 at $1.4 billion), giving us a valuation of 10x EV/S’24. LabelBox’s last funding round was in 2022 and Snorkel AI’s was in 2021, at which time the companies were valued at $0.42 billion and $1 billion, respectively. I’m going to assume that Snorkel AI’s valuation since the last round may have declined, like the valuation of many startups since that time. Given these inputs, I’m guessing that Toloka AI’s valuation is now at least $0.5 billion, giving us an additional $2.5 per YNDX’s share.
TripleTen
TripleTen is a leading edtech platform developed, specializing in reskilling and upskilling individuals for successful careers in tech. It currently offers four immersive study tracks – Software Engineering, Data Science, Business Intelligence Analytics, and Quality Assurance – with two more planned for launch in 2024 (Cyber Analytics and UX/UI Design). TripleTen’s primary markets include the US, Latin America, and Israel, where demand for skilled tech talent is high and growing. The potential market is very large – according to JPMorgan’s estimates, it could reach 33.2 billion by 2025. But I should note that the market is very competitive and is going through some tough times after the pandemic.
The company identifies General Assembly, Springboard, and Thinkful as its closest competitors, but General Assembly was acquired by Adecco Group in 2018 for $412.5 million, and Thinkful was bought out in 2019 by Chegg for $100 million. It is more appropriate in this case to turn to the valuation of its public peers – Coursera, Udemy, and Duolingo. Except for Duolingo, valuations of public education companies are now far from their 2020-2021 peaks. Duolingo shares are now trading at 9.4x 2024 revenue, while Coursera and Udemy are trading at 0.56x and 1.1x, respectively. TripleTen is growing revenue much faster than Coursera and Udemy, so let’s take the average valuation of these three companies at 3.7x and multiply that by the company’s expectation of $60 million in bookings by year-end. That’s $221 million or $1.1 per share of Yandex N.V.
Avride
This part of the business is the most difficult to value. Avride develops autonomous driving technology for self-driving cars and delivery robots. The Avride team builds on a successful track record of delivering and commercializing projects across North America and Asia over the past seven years. The market size for robotaxis is expected to reach USD 45.7 billion in 2030 (Markets&Markets Forecast, 2023), while Avride’s total addressable market for last-mile delivery with robots is forecast to grow to around USD 2.2 billion in 2030 (IndustryArc, 2024).
Let’s evaluate both parts of Avride’s business separately. According to the company’s press release, Avride’s delivery robots have made 200,000 food deliveries. The leader in this market, Starship, has made 6 million deliveries and was valued at $371 million in the 2022 round (there was another round from January 2024, but the valuation is not disclosed). So the valuation of this part of the business is at least $12.3 million (or $0.06 per share) if we use the EV/Deliveries multiple. That approach is the most suitable in this case, I think.
Things with valuation are more complicated in the robotaxi part of the business. The closest analogs are Waymo (owned by Alphabet, the current leader in this industry), Cruise (owned by General Motors), and Aurora (a public company). The latter has no revenue at the moment. Waymo and Cruise’s valuation data is outdated. In these circumstances, let’s take Waymo as an analog for comparison, which in May 2020 was valued at $30 billion. We will leave this estimate, since the reduction in market-wide valuations since that time in this case should have been offset by business growth. Further, it will be reasonable to start from the number of trips with passengers. Avride has 65k of them since 2018, while Waymo has already had more than 20 million rider-only trips without a company engineer in the cabin. If we take the EV/Passenger ride multiple, it would be a very conservative valuation, corresponding to Avride’s valuation of at least $97.5 million, which equals Yandex N.V.’s stock valuation of $0.49. And I note that the valuation of this business could well be close to $500 million (or $2.5 per share) or even $1 billion ($5 per share), but let’s take $0.49 for conservatism, which combined with the delivery robots would give Avride a valuation of at least $109.8 million or $0.55 per YNDX’s share.
Final thoughts on valuation
Summing the value of all the businesses, we get a valuation of Yandex N.V.’s operating business of $2.11 billion, or $10.6 per share of the company. Now let’s add to this the cash reserve after the sale of assets. To recap, the transaction amounted to $5.4 billion, of which $2.8 billion was paid in cash (in yuan). Including the tax on the sale of assets, the company will have about $2.5 billion in cash and no debt, which is in line with the company’s comments in the press release. Add to that the valuation of investments in other companies totaling $103 million (1Q24 financials), which appears to consist primarily of a minority stake in ClickHouse, which was spun off from Yandex N.V. in 2021 and was valued at $2 billion then. The company’s total valuation would be $4.7 billion, or $23.6 per share. That said, this is a very conservative valuation due to little data on the rest of the company’s business and a very modest valuation from Avride, whose more optimistic valuation could put Yandex N.V.’s fair share price in the $30+ per share range. As a result, I am waiting for the company’s stock to resume trading on NASDAQ and do not plan to sell my shares as soon as trading resumes. The fact that Arkady Volozh became CEO of Yandex N.V. also adds positivity to the company’s investment case. I note that I am also waiting for more detailed metrics to be released for each of the businesses, which will allow for a more accurate valuation of Yandex N.V.
Read the full article here
