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Yandex Sinks as Putin Hints at Stronger Internet Control

Photographer: Andrey Rudakov/Bloomberg

An employee uses the Yandex NV internet search engine on a computer at the company's headquarters in Moscow. Close

An employee uses the Yandex NV internet search engine on a computer at the company's... Read More

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Photographer: Andrey Rudakov/Bloomberg

An employee uses the Yandex NV internet search engine on a computer at the company's headquarters in Moscow.

President Vladimir Putin’s threat to subject Yandex NV (YNDX), Russia’s largest search-engine company, to more regulation is deepening the stock’s selloff.

Yandex plunged 10 percent to $24 in New York today after slumping 5.6 percent yesterday as Putin said the government is considering what types of companies should be recognized as media outlets, which require a license in Russia. He said the issue with Yandex, which republishes news stories on its website, isn’t a simple one. The stock is down 44 percent this year, making it the worst performer on the Bloomberg index of the most-traded Russian stocks in the U.S., after doubling in 2013.

Putin, speaking at a conference in St. Petersburg, said Russia should protect its information in a market dominated by U.S. technology. The comments suggest Putin may try to gain more control of Russia’s online industry as his push into neighboring Ukraine fuels the worst standoff with the U.S. and its allies since the end of the Cold War, said Ian Hague, founding partner of Firebird Management LLC.

“The Kremlin seems to be very concerned about its ability to control people’s communications on the Internet, particularly communications in Russian,” Hague, based in New York, said by phone yesterday. “It’s hard to interpret Putin’s comments as anything but negative for Yandex.”

Firebird, which manages $1.3 billion of assets including Russian stocks, doesn’t hold Yandex shares, Hague said.

Russian Taxes

Yandex said in a statement that it doesn’t see the need for a license to publish headlines on its homepage “since all of these headlines are produced by licensed media outlets.”

Putin also expressed concern about Yandex’s corporate structure.

When Yandex started, “they were pushed to have a certain number of Americans and Europeans in their management,” Putin said at the conference yesterday. “Some of their regulation is done abroad, and not only for the purpose of taxation, but for other reasons. That is a complex area.”

Yandex, based in The Hague, said its decision to locate its headquarters outside of Russia had nothing to do with its tax structure.

“Practically all of our taxes are paid in Russia since our principal business is here,” Ochir Mandzhikov, a spokesman for Yandex, wrote in an e-mail response to questions yesterday.

Quarterly Income

Putin has sunk stocks before with public comments. OAO Mechel, the steelmaker controlled by Igor Zyuzin, plunged the most in three years in July 2008 after Putin, then serving as prime minister, publicly rebuked the billionaire for saying he was too sick to attend a government meeting. If Zyuzin doesn’t get well soon, “we’ll need to send him a doctor and clean up all these problems,” Putin said at the time.

Yandex yesterday reported a 19 percent increase in first-quarter profit on rising demand for Internet advertising. Net income climbed to 2.68 billion rubles ($75 million), the company said in a statement, falling short of the 2.69 billion-ruble average of estimates compiled by Bloomberg. Revenue gained 36 percent to 10.9 billion rubles, compared with the average estimate of 10.5 billion rubles.

The Bloomberg Russia-US Equity Index retreated 3.3 percent to 77.25 today, extending its 2014 plunge to 25 percent. The Micex Index slid 1.6 percent to 1,280.12.

Putin said information must be protected and indicated that his government may review Yandex’s status as a media institution.

“This was a strong and negative signal,” Mansur Mammadov, a money manager at Kazimir Partners in Moscow, which sold its Yandex holding last year, said by phone yesterday. “When Putin talks about a private company in such a negative context, that is immediately bad for the stock.”

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Marie-France Han, Matthew Oakley

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