IPO Preview: Yandex N.V., Russian Search Engine

May 23, 2011 7:54 AM ETYandex N.V. (YNDX)GOOG, BIDU, AABA3 Comments
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Based in The Hague, Netherlands, Yandex N.V. (NASDAQ:YNDX) is scheduling a $1.1 billion IPO with a market capitalization of $6.7 billion at a price range mid-point of $21 for Tuesday, May 24, 2011. The full IPO calendar includes seven others for a total of $3.25 billion.

SUMMARY -- YNDX is the leading Internet company in Russia.

FYI: Russia's president, Medvedev, is warning of a new Cold War with the west, which presents an investment risk. However, if Russia drives out Internet competition like China did for the search engine Baidu, then YNDX would benefit.

YNDX generated significant recent growth, comparing the March 2011 quarter with the March 2010 quarter

  • Sales were up 65% to $139 million.
  • Profit was up 61% to $29 million.

VALUATION -- YNDX at the mid-point of the price range is valued between Google (GOOG) and China-based Baidu (BIDU).

Annualizing the two quarters ended March 2011 the comparisons are:

  • Price-to-earnings: GOOG, 20; YNDX, 43; BIDU, 68.
  • Price-to-sales: GOOG, 5; YNDX, 11; BIDU, 31.
  • Price-to-book value: GOOG, 3.5; YNDX, 10; BIDU, 32.

YNDX Valuation Metrics

CONCLUSION -- Russia lacks a credible business legal system and also lacks a commitment to free markets. In addition Russia's president waving the Cold War flag, so it may be prudent to be only a short term investor in YNDX. Sales and earnings increases for the March quarter are impressive.

BUSINESS -- YNDX is the leading Internet company in Russia, operating the most popular search engine and the most visited website. In 2010, YNDX generated 64% of all search traffic in Russia and was the largest Russian Internet company by revenue.

In March 2011, the yandex.ru website attracted 38.3 million unique visitors. YNDX also operates in Ukraine, Kazakhstan and Belarus. YNDX's search and many of its services are location-based and are available in versions tailored for mobile and other digital platforms and devices.

DUAL STOCK CLASS -- Class A: 129,200,543 shares, representing 6.3% of the total voting power of the outstanding shares. Class B: 192,046,915 shares, representing 93.7% of the total voting power of the outstanding shares.

Total: 321,247,458 shares.

COMPETITION -- YNDX faces competition from global players such as Google and local players such as Mail.ru, both of which offer proprietary search and other services.


Google launched its Russian-language search engine, google.ru, in 2001 and established its first office in Russia in 2006. According to LiveInternet.ru, Google's share of the Russian search market for 2010, based on the search traffic generated, was approximately 22%. This compares with 64% for YNDX's search platform and 8% for Mail.ru's search platform.

In addition to its search solutions, Google offers online advertising and information and other search services similar to YNDX's, including services similar to Yandex.Direct and Yandex.Maps.

Domestic competition

In terms of domestic players, the principal competitor is Mail.ru. At the end of 2009, Google and Mail.ru announced a partnership agreement pursuant to which Mail.ru would use Google's search platform and contextual-advertising technology.

In early 2010, however, Mail.ru launched its own search platform, though it continues to use Google's ad serving technology for its search results pages. In addition to its proprietary search technology driving its own search service, Mail.ru offers many communication services, including Russia's most popular webmail service.


YNDX also faces competition from the Russian and international websites of Microsoft and Yahoo! (YHOO), and also competes with online advertising networks, such as Google and Begun, which direct text-based advertising on a number of popular Russian websites such as Mail.ru, Rambler and others.

Social Networking

YNDX anticipates that social networking sites, such as Facebook, Vkontakte and Mail.ru's Odnoklassniki and My World services, may become significant competitors for online ad budgets.

USE OF PROCEEDS -- Shareholders intend to sell 37 million Class A shares. YNDX expects to sell 15.4 million Class A shares to net $306 million. Company proceeds are allocated to general corporate purposes, including investments in technology infrastructure, particularly new servers and data centers

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

This article was written by

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During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics). http://www.facebook.com/profile.php?id=100001524943912

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