Yandex: Ready for the “Russian Google” IPO?
In the rush to push out the next generation of internet stocks, out next week will be Yandex (YNDX) aka “the Russian Google (NASDAQ:GOOG)”. While dominant in its home country, the company will have its work cut out for it as it attempts to expand internationally. There is also political risk with any Russian stock – something I narrowly avoided with Mechtel a few years ago. That said, with the current hysteria around almost anything internet/social media/group — think LinkedIn (NYSE:LNKD) — the stock will most likely have a very positive reaction upon IPO.
- …. after May 24, when Yandex is expected to raise around $1 billion in an initial public offering on Nasdaq. Most of Russia’s successful companies are those that dig—for oil, nickel, aluminum. Others are tainted by accusations of corruption or intellectual-property theft. Yandex seems to be an exception: a homegrown market leader that leveraged Russia’s math and engineering talent in pursuit of technological breakthroughs.
- According to research group LiveInternet, its search engine now accounts for 64 percent of the Russian market to Google’s (NASDAQ:GOOG) 23 percent, and Yandex is hinting at ambitions abroad. For foreign investors, the question will be whether the Kremlin leaves the company alone.
- Volozh and his high school friend, Ilya Segalovich, started working on search in the early 1990s. Their Internet search engine went live in 1997, and Yandex, which stands for “yet another indexer,” became an independent company in 2000. Revenue has doubled every year since, and in the first quarter of this year, Yandex brought in $137 million, almost entirely from ads, according to its prospectus.
- Part of the explanation for Yandex’s success is first-mover advantage. Google (GOOG) didn’t open a Russian office until 2005. Volozh and Segalovich began work on their indexing technology before Sergey Brin and Larry Page had even met, and they added maps, news search, and Web mail to Yandex’s offerings years before Google did.
- Being native Russian speakers helps. Yandex’s algorithm accounts for the intricacies of Russian grammar, where the same word can have dozens of different endings depending on its place in a sentence. It can, for instance, recognize the word “field” (“polye“) even when it appears in a phrase like “lilies of the field” (“polevye lilii“). Google couldn’t do the same until 2007.
- In its prospectus, Yandex warns investors that “well-funded, well-connected financial groups” in Russia occasionally use “economic or political influence or government connections” to take over independent companies. “Our ability to thwart such efforts may be limited,” the prospectus reads.
- Yandex would know. In 2008, Alisher Usmanov—an Uzbek mining oligarch and longtime ally of Russian President Dmitry Medvedev—said he tried to buy a 10 percent stake in Yandex but was rebuffed. According to local press reports, the following year the Kremlin forced Yandex to sell a “golden share” to a state-owned bank for one euro. The share gave the bank, and by extension, the Kremlin, power to veto any acquisition by a foreigner of more than 25 percent.
- A Yandex (YNDX) executive interviewed in December 2009 says the company was slow to grasp the importance of lobbying but has begun to take it seriously; Volozh now meets regularly with Surkov.
- Yandex will raise $1.3 billion from its Nasdaq (NASDAQ:NDAQ) IPO if it prices new and existing shares at the top of their range and the banks exercise an over-allotment option. Its order book — officially due to close on Monday — is already oversubscribed, sources say.
- Full-year 2010 revenue rose 43.2 percent to 12.5 billion roubles ($445.2 million) to U.S. Generally Accepted Accounting Principles (GAAP). First-quarter 2011 revenues stood at $137 million.
- Net profit rose to 3.8 billion roubles ($135.3 million) in 2010 from 2 billion roubles in 2009. First-quarter 2011 net profit amounted to $28.8 million.
- The number of advertisers rose by more than 40 percent in 2010 to 180,000.
Trader Mark is the founder of Fund My Mutual Fund.