러시아 최대 검색엔진

[hotlip]

Russia internet: The Russian discount

May 25th 2011

FROM THE ECONOMIST INTELLIGENCE UNIT

Russia's biggest internet search engine has had a spectacular listing in the US. Is the country back on investors' radar?

It's an unusual sales pitch. "High-profile businesses in Russia, such as ours, can be particularly vulnerable to politically-motivated actions," Yandex, Russia's biggest internet search engine, said in its prospectus for a share listing in New York. But in the event investors came flocking to the initial public offering, valuing the company more highly than Google by some measures. It is increasingly clear that international investors are willing to take a punt on Russia again, or at least on the right Russian company.

Demand was so high that Yandex was able to raise the price of its shares shortly before the sale yesterday (May 24th) of about 16% of its stock for US$1.3bn (valuing Yandex at around US$8bn). It is a remarkable price for a company that netted US$135m on sales of US$445m last year. But the firm is growing fast, with revenue up over 40% in 2010. And it is riding a surge of global interest in new-tech stocks that has caused some analysts to warn of an internet-stock bubble.

Yandex's IPO valued the company at around 60 times last year's earnings, and at least 23 times next year's expected earnings. Google, the US giant, trades at 13 times 2012 earnings, suggesting investors are paying a big premium to buy into Russia's fast-growing market. There is some truth to that. Russia's internet advertising market grew by 59% a year in 2005-09, according to Boston Consulting Group, with internet penetration expected to surge from 40% to 70% over the next four years. But while it is one of the fastest growing internet markets in the world, the signs are still there that investors remain wary of Russian risk, and certainly that they will only buy into certain types of companies.

Lack of investor appetite has forced several Russian companies to scrap planned IPOs in London recently, with little interest in old-tech firms like Russian Helicopters, a state-owned defence company. Equally, while the Yandex listing was spectacularly successful, its valuation remains well behind similar companies such as the Chinese portals Baidu and Sina, which were valued at close to twice as much in relation to earnings. More generally, analysts reckon Russian companies are still worth around 40% less than their emerging market peers, such is the fear of Russia.

Reasons for distrust

Yandex itself shows that there are reasons for such distrust. Russia's state security service, the FSB, recently forced it to hand over the details of people who had used the site to make donations to an anti-corruption project. But Yandex is also quite an unusual beast for Russia: a post-communist start-up that competes successfully against the multinationals--and which is not controlled by the notorious oligarchs that own much of the country's heavy industry and banks.

Yandex was set up by a group of software engineers in 1997 and now has backing from local (and some international) investment funds. It has grown fast, with a market share of close to two-thirds at home. It claims that its software works better for Russian-language searches than international rivals such as Google, which is used by three-times fewer Russians. And, it emphasises, it is one of the few big Russian private firms not owned by an oligarch.

There is plenty of investor interest in companies like this--and indeed in other companies serving Russia's fast-growing consumer market, with a swathe of investment recently into sectors including pharma, autos and soft drinks. Yandex can grow fast on the back of surging Russian demand, and is already expanding into neighbouring markets like Ukraine. But even for a company like this investors still knock the price down simply because it is in Russia.