Yandex Stock Premium Over Google Swells After Earnings Surprise

Yandex NV (YNDX)’s better-than-estimated earnings will help the Russian search-engine operator extend gains after a rally sent the stock to the highest valuation in nine months versus Google Inc. (GOOG), according to OAO Sberbank.

The stock jumped 3.1 percent to a two-year high of $31.81 in New York yesterday, valuing the company at 30 times estimated earnings, a 47 percent premium over Mountain View, California-based Google, and 23 percent above the ratio for Baidu Inc. (BIDU), operator of China’s largest search engine. The Micex Index and RTS both advanced 0.2 percent at 12:42 p.m. in Moscow.

Yandex increased its annual sales forecast and reported second-quarter earnings that exceeded analysts’ estimates yesterday as it benefits from rising demand in Russia for Internet advertising, which is set to jump 26 percent a year through 2015, according to ZenithOptimedia. Yandex boosted its share of Russian searches to 61.7 percent in the second quarter, from 60.4 percent a year ago, according to data compiled by LiveInternet.ru. Google, the world’s largest search-engine operator, has about 26 percent.

“Yandex keeps beating estimates and cheering the market with its results,” Anna Lepetukhina, an analyst at Sberbank, Russia’s largest lender, said by phone from Moscow. “Its premium to Google and Baidu is justified because it has posted high growth and has potential to grow further.”

Photographer: Andrey Rudakov/Bloomberg

An employee passes the Yandex NV logo displayed in the company headquarters in Moscow. Yandex’s share of Russia’s Internet searches exceeds 60 percent, while Google Inc. has about a quarter of the market, according to data on LiveInternet’s website. Close

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Photographer: Andrey Rudakov/Bloomberg

An employee passes the Yandex NV logo displayed in the company headquarters in Moscow. Yandex’s share of Russia’s Internet searches exceeds 60 percent, while Google Inc. has about a quarter of the market, according to data on LiveInternet’s website.

Yandex, based in The Hague, Netherlands, said 2013 revenue will grow faster than earlier expected, increasing as much as 38 percent this year, after net income in the second quarter jumped 48 percent to 2.92 billion rubles ($89 million), according to a statement. It had previously projected sales growth of no more than 35 percent.

Segalovich Legacy

Second-quarter revenue rose 35 percent to 9.2 billion rubles, faster than a 33 percent average estimate of seven analysts surveyed by Bloomberg.

Yandex said yesterday that co-founder and Chief Technology Officer Ilya Segalovich, 48, is on life support after falling into a coma, with no sign of brain activity. Segalovich owns about 2.5 percent of the company, which he founded with his classmate Arkady Volozh, chief executive officer at Yandex.

“Segalovich has built a strong technology team, which will be able to continue doing what it was doing when he was at the company,” Sberbank’s Lepetukhina said. Sberbank has a buy recommendation for Yandex.

Revenue Source

Web advertising in Russia will increase 32 percent this year after a 35 percent gain in 2012, as more people start using the Internet, according to Barclays. Yandex makes most of its revenue from online advertising.

“Yandex is all about generating money via web searches,” Boris Vilidnitsky, an analyst at Barclays Plc in London, said by phone yesterday. “Its business concept is aimed at making you do all of your web searches without ever leaving the Yandex website. Advertisers are willing to pay a lot for that.”

The number of Internet users in Russia is expected to increase to about 65 percent of a population of 143 million people in the next five years, from about half now, Vilidnitsky said. He has a target price of $35.35, implying an 11 percent jump.

Yandex signed an agreement to operate paid search results for Mail.ru (MAIL), Russia’s largest social-network operator, Gregory Abovsky, the head of investor relations at Yandex, said on a conference call yesterday.

ETF Drops

The RTS Volatility Index, which measures expected swings in the stock futures, slid 1.7 percent to 22.09 today. The Market Vectors Russia ETF (RSX) was little changed at $26.93 yesterday. The Bloomberg Russia-US Equity Index fell for a second day yesterday, dropping 0.7 percent to 91.63.

The ruble weakened less than 0.1 percent to 32.6345 per dollar, depreciating for a third day today. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 33.1094 per dollar in three months. The currency depreciated less than 0.1 percent to 37.4576 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness.

Crude for September delivery fell 0.7 percent to $104.75 a barrel on the New York Mercantile Exchange. Brent oil for September settlement slipped 0.6 percent to $107.00 a barrel on the London-based ICE Futures Europe exchange.

United Co. Rusal (486), the world’s largest aluminum producer, fell for a third day, sliding 1.1 percent to HK$2.79 in Hong Kong trading. Uralkali, the world’s largest potash producer by output, gained 3.2 percent in London trading. The MSCI Emerging Markets Index advanced 0.2 percent, increasing for the first time in three days.

To contact the reporters on this story: Natasha Doff in London at ndoff@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net

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