There are two big countries in which Google Inc (NASDAQ:GOOG) does not dominate search: Russia and China. The companies that dominate these markets are Yandex NV (NASDAQ:YNDX) and Baidu.com, Inc. (ADR) (NASDAQ:BIDU), respectively. Both stocks have soared after their recent quarterly reports. Yandex has already gained 55% this year, while Baidu has gained 27%. Baidu has to deal with competition from within the country, as Google’s share of the Chinese search market stayed in the low-single digits. On the other hand, Google is the main competitor of Yandex in the Russian search market. Let’s take a closer look on this battle.
Gaining share
Yandex NV (NASDAQ:YNDX) has reported that its search share was 61.7%, up from 60.4% a year ago. This share was taken from Google Inc (NASDAQ:GOOG). Contextual ads brought 88% of earnings in the second quarter, up 35% year over year. Yandex is following a business model that is similar to Yahoo! Inc. (NASDAQ:YHOO)’s. The company is betting on its own products. Yandex’s own website brought 73% of total revenue in the second quarter. The ad network grew 25% in comparison with 2012.
One of the sources of market share gain for Yandex NV (NASDAQ:YNDX) was the popularity of its browser. The company has stated that browser development is extremely important, as its browser is a platform for search. The browser has yet to reach a 5% market share, but it is gaining share smoothly.
In addition, Yandex NV (NASDAQ:YNDX) released its mobile browser in June. The initial versions cover the iPad and Android phones. Versions for iPhone and for Android tablets would follow in a few months. The company has stated that it would put serious effort in the distribution once all versions are ready.
Mobile was one of the reasons why Baidu.com, Inc. (ADR) (NASDAQ:BIDU) underperformed at the beginning of this year. The company has addressed the issue, and has reported that it gained momentum in mobile. Mobile revenues were 10% of total revenues in the second quarter. Baidu has stated that its mobile search app and mobile browser were the biggest drivers of growth. All in all, the company’s revenues grew 38.6% year over year.
At the same time, the Russian and Chinese markets live their own life. The trends on those markets are not favorable for Google Inc (NASDAQ:GOOG). Google had never had any success in China, and now it has started to lose its Russian share. The company seems to be focused on its new projects like Google Glass that take Google outside of the traditional search business into the new reality.
Will the momentum continue for Yandex?
I think Yandex NV (NASDAQ:YNDX) will continue to grow its share. Google Inc (NASDAQ:GOOG) does nothing in the Russian market to offer real competition. When Yandex finishes all its browsers and starts aggressively distributing them, bigger market share will follow. There is historically no browser loyalty on the Russian market, and people easily switch between different products.
The recent deal with Mail.ru enlarges the possibilities to extract profit from contextual advertising. The deal allows the ads from Yandex to be displayed on Mail.ru search results. On the first of July, Mail.ru has started using its own search engine, dropping Google Inc (NASDAQ:GOOG). Mail.ru’s share on the Russian market is 8.7%. This is another negative development for Google in Russia.
Bottom line
Yandex NV (NASDAQ:YNDX), which trades at 24.85 forward P/E, is a growth opportunity. The company is building its share in the Russian market while increasing user engagement with a multitude of products. Yandex is also present in the Ukrainian and Turkish search markets. Turkey is another growth opportunity, but this growth would be delayed, as the political situation in the country froze additional developments. Yandex’s market share in Turkey is just 2.5%, but the company has stated that it will begin to work aggressively once the political environment stabilizes.
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has shown good momentum this quarter. The company is operating in a very tempting Chinese market. It is important to remember that a big percentage of the world’s most populous country still lives without the Internet, so the possibilities for growth are huge. The company trades at a reasonable 20.31 forward P/E.
Google Inc (NASDAQ:GOOG) lost share in Russia, and its share in the Chinese market is very small. However, in the rest of the world, it is a dominant player. The company trades at 16.62 forward P/E and, in my opinion, can easily reach $1,000. The company’s prospects with Google Glass, as well as very far-sighted developments on the self-driving car should be taken into account.
Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and Yandex. The Motley Fool owns shares of Baidu and Google.
The article Choose This Internet Stock for Growth originally appeared on Fool.com.
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