Yandex NV (YNDX): The Winner of Russia’s Search War

Peer comparison

Google Inc (NASDAQ:GOOG) has a 26% search market share in Russia, and poses the greatest threat to Yandex. The distant third place is reserved for Mail.ru with an 8.8% market share. Yandex’s ability to grow market share has shown the strength of the company in Russia. Other areas of interest for Yandex are Ukraine and Turkey. Google Inc (NASDAQ:GOOG) is the largest company in the group and it is the slowest grower. Average quarterly earnings growth in the past four quarters was 8.7%, while revenue grew at an average pace of 34%.

The Chinese search market is dominated by Baidu.com, Inc. (ADR) (NASDAQ:BIDU). The company has experienced significant earnings and revenue growth, but it has slowed down significantly in the recent quarters. Revenue growth decelerated from 98% in first quarter 2012 to 42% in the first quarter of this year. Earnings growth slowed to just 17% in the first quarter, from much higher growth rates in 2011 and 2012. Qihoo 360 entered the Chinese search market in the summer of 2012, grabbing a 10% market share almost instantly. The company is investing heavily this year in order to boost its share of the market, and management has targeted 20% of the search market by the end of the year. Qihoo 360 has grown earnings in the triple digits in the past two years.

Based on the forward price-to-earnings ratios for 2013, Yandex is trading at a premium with a 28 times projected earnings compared to Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s 19 and Google’s 20. Qihoo 360’s forward ratio is 41. That seems justified given the higher growth rates Yandex is achieving and is expected to achieve, relative to Baidu and Google.

Bottom line

Yandex presents a way to gain from secular growth trends in the Internet market. It has delivered strong growth in the past, and is expected to keep delivering robust growth in the future. The company is beating Google in Russia and is increasing its share of the search market, proving it has a strong team in place, capable of fighting the most formidable competition. A big share-buyback program announced in the first quarter is another positive, since the company has displayed determination to give back money to its shareholders.

The article The Winner of Russia’s Search War originally appeared on Fool.com.

Dusan Jovanic owns shares of Yandex. The Motley Fool recommends Baidu, Google, and Yandex. The Motley Fool owns shares of Baidu and Google. Dusan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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