Yandex: The Google of Russia
This leading Internet search company is growing at twice the speed of its US competitor.
Yandex (YNDX) is the leading search engine in Russia and therefore has earned the right to be called "The Google of Russia."
The ﬁrst contextual advertising appeared on the site in 1998, the year Google (GOOG) was founded. In 2000, Yandex became a stand-alone company. And in every year since then, the company's revenues have grown. In most years, its share of the Russian search market has grown, too; currently, Yandex's market share is around 60%. Google is in second place, with a Russian 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 also offers a player of free legal music.
It has an English-language search engine and 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%. 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 for being investor-friendly, with oligarchs and old school politics generally ruling the roost.
YNDX went 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 its 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.
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