Sunday, December 21, 2014


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Russia's Top Internet Company, Yandex, Makes U.S. Debut With IPO

Listing on the U.S. Nasdaq exchange is "a way to signal to [U.S.] investors that they intend to be a technology company that happens to be in Russia versus a Russian company that happens to be involved in technology," one analyst says.
Listing on the U.S. Nasdaq exchange is "a way to signal to [U.S.] investors that they intend to be a technology company that happens to be in Russia versus a Russian company that happens to be involved in technology," one analyst says.
By Nikola Krastev
NEW YORK -- Russia's largest Internet company and most visited website went public today with an initial public offering (IPO).

Yandex, a popular search engine and web portal that has shown a profit since 2002, is offering 52.2 million shares priced between $24 and $25.

Citing unidentified sources, Reuters reported today that the shares had already been presold and that the company raised $1.3 billion, 19 percent more than expected. Yandex had initially planned to sell the shares at $20 to $22. The company will list on the Nasdaq Stock Exchange under the symbol YNDX.

Yandex considered going public back in 2008 but abandoned the idea amid the global financial crisis.

The company is often dubbed "Russia's Google" and  analysts have long said they expected the IPO to be the largest for an Internet company since Google itself raised $1.67 billion in 2004.

Konstantin Chernyshev, a Moscow-based Internet analyst with the Uralsib investment bank, says that while the comparisons with Google have some merit, he stresses that Google is a global powerhouse while Yandex is a regional player -- albeit one that dominates Russian-language search.

"In some respects there are similarities, certainly, because Yandex is also a search engine and the lion's share of its revenue comes from advertising -- online advertising and contextual advertising, almost 90 percent of Yandex revenue is derived from contextual advertising," he says. "In this respect, comparisons [with Google] are well-justified but the scale of business is different, of course."

More, And Less, Than 'Russian Google'

Chernyshev adds that Yandex projects $630 million in revenue for 2011. It dominates search on the Russian-language Internet with 38 million unique users a month and an estimated 65 percent market share as compared to Google's 22 percent. It is popular not only in Russia, but also in Belarus, Ukraine, and Kazakhstan.

Not just "Russia's Google?"
Yandex's position in the Russian-speaking world is similar to that of Chinese-language search engine Baidu, which commands 63 percent on that market.

Byrne Hobart, a New York-based Internet analyst with the research firm Digital Due Diligence, says that Yandex's competitive advantage in the Russian market makes it an attractive investment.

"One thing that a lot of computer scientists will say is that Yandex at least matches Google and perhaps is far ahead of Google in terms of using machines learning to understand conjugation, and tenses, and cases, and things like that that have a major impact on the meaning of words in Russian text," Hobart says.

Google didn't open a Russian office until 2005. Yandex, on the other hand, has been operating since 1997.

Hobart adds that Yandex's presence on the Nasdaq exchange is something of a novelty, since most Russian companies publicly traded in the United States are from the energy and natural-resource sectors.

"For Yandex it's a way to signal to [U.S.] investors that they intend to be a technology company that happens to be in Russia versus a Russian company that happens to be involved in technology," he says.

Listing on the Nasdaq exchange requires comprehensive corporate and financial disclosure and regulation by the U.S. Securities and Exchange Commission.

Political Risks?

In its prospectus to potential investors, Yandex warns 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 adds.

Yandex was forced to sell a "golden share" to Prime Minister Vladimir Putin's (pictured) government to prevent foreign acquisition.

In 2009, it has been reported, under Kremlin pressure Yandex was forced to sell to the government for one ruble a so-called "golden share," which gives it veto power to forbid any acquisition by a foreigner of more than 25 percent of the company.

But Chernyshev of Uralsib dismisses such concerns and says that similar mechanisms to prevent ownership by foreigners of strategically important companies exist in many other countries, including the United States.

"As for political risks, I don't see many for Yandex, even though there was some speculation about [government] attempts to control the Internet," the Russian analyst says. "Nevertheless, it was relayed from the very top that no one intends to control the Internet in Russia. So far even if there are political risks, they may exist but are probably exaggerated with regard to Yandex."

Yandex's IPO comes months after another successful Russian Internet company went public. Mail.ru debuted in November 2010 on the London Stock Exchange and was able to raise a record $912 million in new capital.

By the end of the trading day today, shares of Yandex had risen 55 percent from their opening value, closing at $38.84. 

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