Russia Search Engine Yandex Gets Stock Market Results

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Yandex ( YNDX ) isn't taking a back seat to Google in the Web search race -- at least not yet.

Russia's top search company has used some of the same strategies employed by the Web's global search leader while developing other innovations that could cement the company's position as the leading service provider in the region for years to come.

Yandex already owns more than a 60% share of Russia's search market vs. 25% forGoogle ( GOOG ). Year-over-year quarterly revenue growth is also regularly north of 29%. Investors have taken note. Shares are up about 89% this year.

The overwhelming market share and revenue growth have helped ease investor fears that Yandex would soon be a Google casualty, says Munish Malhotra, a portfolio manager for Marsico Capital Management. Marsico owned shares in Yandex and Google in its latest reporting period.

"The perception a lot of investors had is that Google at some point is going to eat their lunch but what they have shown is that they can actually compete extremely well in their home market," Malhotra said.

Advertising As A Base

Yandex operates similarly to its U.S.-based rival. Both companies sell text-based ads that show up near search results on their own Web properties and partner sites. And like Google, Yandex is also diversifying and expanding its revenue from other sources including display ads and offering an online retail comparison shopping service.

But Yandex is also moving in other directions to boost consumer usage and ad revenue.

The company has a wide variety of services including a local news site, a music service and an online payment service that is similar to PayPal, a unit ofeBay ( EBAY ), the world's largest online marketplace. Earlier this month, Yandex began offering online retailers the option of handling transactions on its comparison shopping site for a fee. And last week Yandex announced the acquisition of the biggest Russian-language website on movies, TV shows and celebrities. The site, KinoPoisk, has a monthly audience of 18.6 million users and is the 16th largest Web property in Russia, the company notes.

Yandex is hardly one-dimensional, says Annette Jump, an analyst for market tracker Gartner.

"They are doing more than just search," she said.

Google is also known for its leading online map service.

Yandex has stepped up the monetization of its own mapping service by collecting fees from taxi services that use it. Consumers can see where taxis are located on the map.

Drivers pay a fee each time they collect a fare from consumers who use the service, Malhotra says.

"When the cab shows up and the fare is accepted, Yandex gets a percentage of the fare, so it just shows you how innovative they really are -- they don't just try to copy the Google playbook," he said. So far the results appear promising.

In its second quarter, Yandex, which still gets most of its revenue from Web search ads, produced revenue of $281.2 million, up 35% from the year-earlier period.

The company reported a per-share profit, minus items, of 27 cents vs. 19 cents in the year-earlier period.

For the current quarter, analysts expect revenue of $303.8 million, up 34% from the same quarter last year. Yandex's per-share profit, ex items, is expected to reach 24 cents, up 3 cents from the year-earlier quarter. Yandex will report its Q3 results on Oct. 24.The company appears to have much room to grow.

By 2017, digital ad spending in Russia is expected to reach $3.18 billion, up from $1.62 billion last year, says eMarketer.

Desktops And Devices

The research firm also forecasts Internet users in the region will reach 94.3 million or 66.3% of the population by 2017, up from 71.3 million or 50% last year.

Another driver is mobile devices.

By 2017, mobile users in Russia will top 122.3 million or 86% of the population, vs. 108.3 million and 76% last year, says eMarketer.

Another reason investors are buying into Yandex has to do with its mobile search market share, Malhotra says. On Google Android devices with the Google Chrome browser it's about 54%, while the share is about 60% onApple ( AAPL ) iPhones and iPad tablet computers.

"They have done a really good job of gaining share on Chrome at the expense of Google, which I think a lot of people were really concerned about," he said.

Although Google is the distant No. 2 search player in the region, it isn't impossible for the company to close the gap, Jump says.

"It's going to take a big investment and lots of catching up both in terms of maps and (online) content," she said.

Yandex's imposing size in the region got another boost in July when Mail.ru, one of the largest Internet services in Russia, dropped Google's search in favor of Yandex. Mail.ru had about 8.5% of Russia's search market before the switch.

The company is now one of the largest partners in Yandex's ad network.

Analysts expect Yandex to report $1.22 billion in revenue this year, up 29.6% from last year. Google is expected to produce revenue of $59.6 billion, up 39.5%.

Analysts say Yandex's biggest threat is still Google.

Though Moscow is the birthplace of Google co-founder Sergey Brin, Malhotra believes it's not likely that Google would spend a lot of money to chase what is still a relatively small market.

"Even if they get 100% of the market in Russia it's really not going to turn the needle for them, so Google's priorities are still on the U.S., Europe and China where the market size is much larger," he said.

Yandex is the sixth largest firm by market cap in IBD's Internet-Content industry group, after Google,Facebook ( FB ), China'sBaidu (BIDU),Yahoo (YHOO) andLinkedIn (LNKD).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL , EBAY , FB , GOOG , YNDX

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