U.S. investors are always in search of "the next
," hoping to latch on to a stock that can appreciate smartly over
In China, they've already had their Google moment. The country's
leading search engine provider,
has seen its
rise from the low teens in early 2009 to a recent $133, valuing the
company at more than $45 billion.
Now, investors are starting to pay closer attention to
, Russia's leading search engine. Fears of falling
have pushed its stock down more than 40% since a post-IPO spike
last spring, but those fears increasingly appear misplaced. And the
company's $7 billion
, though not inconsiderable, still appears to sharply discount the
prospects of major growth in the years ahead.
While Baidu and Google saw explosive growth right out of the gate,
Yandex needed time to gain traction, finally reaching an inflection
point in the last few years. Sales grew a modest 14% in 2009 to
$295 million, but rose 43% in 2010, 60% in 2011, and should rise
another 40% in 2012 and 2013, translating into $1.3 billion in
sales. Goldman Sachs sees that figure hitting $1.7 billion by 2014.
(Note: If you look these numbers up on your own, the current
consensus forecasts on Yahoo Finance are far off the mark, as far
as I can tell.)
So why is Yandex's growth finally accelerating? Because major
Russian companies are belatedly embracing the Internet as a key
part of their marketing campaigns. Goldman Sachs sees Russian
online ad spending rising 35% in 2012 and 30% in each of the
following three years.
Make no mistake, Google is a formidable player, even in Russia. The
company's Android smartphones are becoming increasingly popular and
are helping take market share. Investors have been spooked by the
fact that Yandex's market share has fallen from 65.7% last May to
61.8% in December 2011, according to liveinternet.ru. Google now
has roughly 30% of the
Google took share by making it harder for users of its Android
software to use any other search engine on its Chrome browser.
Google relented on that anti-competitive move about six weeks ago,
and Yandex has seen a modest bounce back in market share in
That bounce back could also be attributed to a relationship with
Samsung, the leading smartphone seller in Russia. Samsung uses its
own operating system (known as Bada) instead of Google's Android,
and the Yandex search engine is integrated into the system.
Samsung projects 50% sales growth for its phones in Russia in 2012.
Windows phones also use Yandex as a default search engine and could
help boost share if that joint venture's offerings gain traction.
In effect, the Russian market is quickly coalescing between Google
in one camp and Yandex in the other.
Goldman Sachs goes so far as to suggest Yandex may soon ink
agreements with wireless service providers to have its software
pre-loaded onto Android phones. What would be Google's response?
"We think Google will likely allow such a
on its operating system because opposition may raise further
anti-trust investigations against Google," note Goldman's analysts.
Investors are best off assuming that the recent stabilization in
market share will be the norm in 2012, and Yandex can simply grow
in line with the broader market. That, as noted earlier, should set
the stage for 40% growth in each of the next two years and also
help Yandex maintain its impressive 45%
margins. Goldman Sachs sees shares rising from a recent $23 to $30
-- a 30% gain. Deutsche Bank is even more aggressive, with a $38
, noting that "shares of Yandex significantly under-appreciate the
Risks to Consider:
is thriving in part due to robust oil prices. A pullback in this
might dampen the Russian economy and consumer spending. Moreover,
investors need to track market share trends. If Google resumes its
market share gains seen last summer, then investors should head for
Action to Take -->
The U.S. and European Internet penetration rates are nearing a
peak, and China isn't far behind. Russia remains relatively
under-penetrated and should deliver very high growth in the next
few years. Yandex.com remains the best way to play that trend.
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of GOOG in one or more if its "real money" portfolios.