Yandex: Can the Russian Google Continue to Sizzle?

Jun. 3.11 | About: Yandex N.V. (YNDX)

By Tony D’Altorio

This past week, another hot technology IPO hit the market with a substantial sizzle. Yandex N.V. (Nasdaq: YNDX), Russia’s largest online search engine, debuted with near-record results.

The company’s $1.3-billion IPO was the biggest technology floatation since Google (Nasdaq: GOOG) debuted in 2004. Admittedly, it has very impressive stats…

Yandex controlled 65 percent of all search traffic in Russia, as of last year. And it brings in more revenue than any other Russian internet company.

Traders ate up those details, pushing the company up as much as 144 percent from its original $25. It hit a high of $61, then settled in the mid-$30 range at the day’s close.

That gave it a market capitalization over $11 billion…

Yandex: The 1st Russian Company on U.S. Exchange Since 2006

Russian companies don’t get listed on U.S. exchanges on a regular basis. Yandex marks the first one to hit the Nasdaq since 2006.

But American investors don’t usually make a beeline for them even when they do. Most find Russia’s political climate too messy for their liking.

The government still plays a large role in the former communist country. And its 2012 elections – which pit current President Dmitry Medvedev against his predecessor and current prime minister, Vladimir Putin – might make it messier.

Even so, Yandex retains its appeal by mirroring Silicon Valley much more than its local competitors. An associated western banker even said, “When you walk through the door, you feel like you aren’t in Russia anymore.”

Yandex capitalized on that idea heavily ahead of its IPO. It openly hailed itself as anything but the typical oligarch-owned, natural-resource company that dominates Russia’s corporate landscape.

Yandex And the Growing Russian Internet Market

The internet market is growing rapidly in Russia, where it comes second only to Germany in size.

Over the next four years, Moscow-based polling agency Public Opinion Foundation sees a lot of positive growth in this area.

It estimates that Russia’s internet penetration will increase from 40 percent to 70 percent. And Russia’s online advertising market will triple, growing faster than any other country’s.

These factors should speed up Yandex’s revenue intake even more.

  • It already rose 43 percent year on year in 2010, up to $440 million.
  • On the downside, however, Google still poses a problem for Yandex.
  • So does local competitor, which listed in London last year. is Russia’s largest email provider. It also owns a major stake in the country’s biggest social networking site and owns part of Facebook.

Yandex Outlook

Yandex’s long-term future raises further worries. Once it does all it can at home, will it be able to expand outside of Russia?

And government interference into the internet poses yet another issue…

The company recently received a lot of negative publicity in complying with government regulations. To the dismay of many, it provided authorities with users’ personal information recorded on its payment site, Yandex Money.

U.S. investors don’t seem to care about any of that so far, though. Far from it, since they bid the stock up to a very rich valuation level…

Right now, Yandex has an earnings multiple of about 93 times net income. That trumps Google’s 20 times and the 87 times recorded by China’s (Nasdaq: BIDU).

And Google trades at 13 times expected 2012 earnings versus Yandex, which trades at about twice that.

That seems a bit too optimistic, even if the company has great opportunities ahead of it. Yandex has a lot to prove in order to live up to all of that hype.

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