Yandex NV (NASDAQ:YNDX) has struggled since the May 2011 IPO, and its share price has never seen the highs it achieved in the first week of trading. But that might change soon, since the company is showing strong growth and expects the growth to continue. The company reported earnings that beat analyst estimates, and the management raised the full-year revenue guidance. The market responded with a surge in share price, and Yandex NV (NASDAQ:YNDX) went on to reach new 52-week highs.
Recent developments
Yandex NV (NASDAQ:YNDX) reported first-quarter earnings of $0.23, beating analyst estimates of $0.19 and up 64% over the same quarter last year. Revenue rose 36% to $252.9 million, ahead of analyst estimates of $247.8 million. The company expects the robust growth to continue, and the management raised full year revenue growth guidance to 30%-35% range from previous range of 28%-32%.
Yandex NV (NASDAQ:YNDX) had a 61.6% share of the Russia’s search market, a 2.2% increase over last year’s 59.4% market share, and 1.1% sequential increase from 60.5% market share in the fourth quarter. Share gains were driven by improvements in search technology, growth in the regions, increasing share on Chrome and Android, and increasing adoption of the Yandex NV (NASDAQ:YNDX) browser.
Yandex.Market, the company’s retail site, continues to grow faster than the overall revenue. In March, the company launched a ramped Yandex.Market application for Android, which is designed both for smartphones and tablets, and has been well-received, with over 1 million updates and 100,000 new installations since launch. The Yandex.Market remains one of the company’s top priorities this year, as it continues its aggressive push in the mobile market.
Yandex NV (NASDAQ:YNDX) announced that it is forming a joint venture called Yandex.Money with Sberbank. Under the terms of the joint venture, Yandex will receive $60 million for a 75% share in Yandex.Money. Yandex.Money is an easy and safe option to pay for services and goods on the Internet.
Yandex ended the quarter with $940 million in cash and investments. A large cash position enabled the company to announce a share repurchase program during the quarter. Under the program, the company will repurchase 12 million shares of common stock over the course of 12 months. The company has repurchased 2 million shares so far.
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.
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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