Wednesday May 02, 2012
by Timothy Lutts, editor Cabot Market Letter
Yandex (YNDX) is the leading search engine in Russia and therefore has earned the right to be called “The Google of Russia.” But there’s more to the story than that.
The ﬁrst contextual advertising appeared on the site in 1998, the year Google was founded. In 2000, Yandex became a standalone company. And in every year since then, the company’s revenues have grown.
In most years, the company’s share of the Russian search market has grown, too; currently, Yandex’s market share is around 60%. Number two in the country is Google, with a market share of 26%.
According to Yandex, the company’s advantages over Google are several. First, it has native knowledge of Russian language morphology.
Second, it has ﬁrst- mover advantage; Google didn’t enter the Russian market until 2006. Third, Yandex considers not just the source country of a search but the source city.
And fourth, Yandex in 2009 launched its Matrixnet search platform, which analyzes not just hundreds, but thousands of factors.
Like Google, Yandex is doing much more than search .It also offers Yandex.News, Yandex.Market, Yandex.Mail and Yandex.Maps. It offers a Russian-to-English and English-to-Russian keyboard layout switcher.
It runs Yandex Labs in the San Francisco Bay area, “to foster innovation in search and advertising technology.” It offers a player of free legal music.
It offers an English-language search engine. It offers photo-sharing and professional networking services similar to Flickr and LinkedIn.
And the company also operates in Ukraine, Kazakhstan, Belarus and Turkey and has been gaining share in each country during the past couple of years.
Finally, there’s Yandex.Money, which is similar to PayPal, and is the largest electronic payment system in Russia. Yandex recently launched a debit card tied to Yandex.Money.
Advertising accounted for 98% of revenues, and brought an after-tax profit margin of 33.0%. Sales and earnings growth have been great for many years.
Possibly the biggest potential pothole is the country Yandex operates in; Russia does not exactly have a reputation of being investor-friendly, what with oligarchs and old school politics generally ruling the roost.
YNDX came public in May 2011. The offering price was 25; the stock peaked at 42 that day. Seven months and a big market slide later, it bottomed at 17.
The company just reported good first-quarter growth; revenues were up 51%. But the company's market share slipped a bit, and nervous investors used that as an excuse to sell.
We’re looking beyond that, however. The main attraction for us is that Yandex is growing at twice the speed of giant Google, and institutional investment in the company is still modest, so there’s plenty of potential buying power out there. We think this represents a decent buying opportunity.
Learn more about this financial newsletter at Timothy Lutts' Cabot Market Letter.