Technology Stocks : Yandex N.V.
YNDX 38.06-1.1%5:20 PM EDTNews

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From: zax7/8/2013 8:13:41 AM
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Yandex Premium to Baidu Is Biggest Ever on Web Ad Boom
By Belinda Cao & Ksenia Galouchko - Jul 8, 2013 6:33 AM CT

Yandex NV (YNDX), the owner of Russia’s biggest online search engine, is trading at the biggest premium to Chinese counterpart Baidu Inc. (BIDU) on record as it wins market share and increases advertising income.

Yandex is trading at 34 times earnings after jumping 28 percent since August in New York, compared with a ratio of 18 for Baidu after its 32 percent drop. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. added 0.8 percent last week, led by phone carrier OAO Rostelecom and television network owner CTC Media Inc. (CTCM)

Yandex, which gets most of its revenue from online ads, increased its share of Russian searches to an average 61.9 percent in April, the most since September 2011, according to data, while Baidu’s portion of China’s web search has shrunk to 70 percent from 82 percent since Qihoo 360 Technology Co. started its search tool in August. Analysts predict a 36 percent jump in net income for Yandex in 2013, compared with a 1.8 percent gain for Baidu, according to estimates compiled by Bloomberg.

“Even though Yandex looks a bit pricey, it’s pretty tough to argue against it if you look at the pace of its latest earnings growth in comparison with global peers,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by phone July 5. “Baidu is in the process of figuring out its mobile strategy, and it also faces a number of other headwinds including competition from Qihoo and the slowing Chinese economy.”

Volatility Decreases Futures (VEA) expiring in June on the RTS gained 0.3 percent to 126,200 July 5 as the Bloomberg Russia-US gauge climbed to 84.77 last week. The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange-traded fund, was little changed at $25.19 in New York after posting losses every month from February to June. The RTS Volatility Index, which measures expected swings in the stock futures, slipped 3.9 percent to 25.16. The 50-stock Micex Index (INDEXCF) climbed 0.3 percent to 1,346.41 by 2:58 p.m. in Moscow.

Shares of Yandex have surged 10 percent since April 25, when the company boosted its 2013 sales target, citing growth in online advertising. Yandex posted a 79 percent increase in first-quarter profit last month and said revenue may rise 30 percent to 35 percent this year, up from a February forecast of 28 percent to 32 percent growth.

Internet advertising in Russia will grow an average 26 percent annually from 2013 to 2015, after expanding 45 percent on average in the 2009-2012 period, Yandex said in a June presentation citing ZenithOptimedia data. Online ad revenue will rise to account for 30 percent of total ad sales by 2015 in Russia, the data showed, compared with an estimated 27 percent for China.

‘Biggest Share’ “Russia’s online advertising market is growing,” Konstantin Chernyshev, an analyst at UralSib Capital who has a buy rating on the stock, said by phone from Moscow. “Yandex occupies the biggest share of the Russian web search market and has all the chances to enhance its financial performance.”

Chernyshev has a price target of $31 for Yandex, a 13 percent upside from the last closing price.

Yandex’s performance this year is also due to a few “positive” product developments this year, according to Alex Vengranovich, an analyst at Otkritie Capital. “With Baidu, I haven’t seen big developments this year,” he said.

Apple Inc.’s iOS7 mobile operating system will include Yandex, Vedomosti reported June 11, citing unidentified Russian software developers with access to the new operating system.

Qihoo Competition (MAIL), a Russian-language e-mail and social networking company, is testing Yandex.Direct, a contextual advertising service, spokeswoman Ksenia Chabanenko and Yandex spokesman Vladimir Isaev said by phone July 4. Contextual ads use content on Web pages to show related listings. The partnership could potentially boost Yandex revenue by as much 10 percent a year starting from next year, Otkritie Capital’s Vengranovich said.

Baidu’s market share in China’s online search market slid to below 70 percent, as that for Qihoo rose to 15 percent, TechinAsia reported July 5, citing Chinese data provider CNZZ.

Beijing-based Baidu bought PPS Net TV’s Internet video business in May for $370 million, seeking to merge it with its video site, which it acquired in November. While the service is still “burning money,” iQiyi is expected to become profitable, Baidu Chief Executive Officer Robin Li said during an April 26 earnings call.

Rostelecom surged 14 percent to $18 last week. The Moscow-based company is accepting buyout offers from investors who didn’t vote or voted against its merger with OAO Svyazinvest until Aug. 12, according to a statement.

CTC gained 7.7 percent to a two-week high of $11.98.

United Co. Rusal (486), the world’s largest aluminum producer, dropped 1.3 percent to HK$3.06 in Hong Kong trading. The MSCI Asia Pacific Index fell 1 percent today after a stronger-than-forecast U.S. jobs report added to the case for the Federal Reserve to reduce economic stimulus.

To contact the reporters on this story: Belinda Cao in New York at; Ksenia Galouchko in Moscow at

To contact the editor responsible for this story: Brendan Walsh at
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