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Yandex Rises on Stock Upgrade as Search Beating Microsoft

Feb. 7 (Bloomberg) -- Yandex NV rallied a second day in New York as HSBC Holdings Plc upgraded the shares after the Russian Internet company overtook Microsoft Corp. on global searches and data showed web advertising grew last year.

Shares of Yandex rose 0.7 percent to $24.50, after jumping 1.7 percent yesterday. Russia’s most-used search engine trades at 29 times estimated earnings, almost seven times the average valuation of companies listed on Bloomberg Russia-US Equity Index. The gauge of the most-traded Russian stocks in the U.S. fell 0.9 percent to 103.91 today.

Yandex unseated Microsoft’s Bing to become the world’s fourth-biggest engine by number of searches in November for the first time on record, data researcher ComScore Inc. said yesterday. HSBC boosted its recommendation on Yandex shares, which have climbed 14 percent in 2013, to the equivalent of buy from neutral, according to a client note dated today. Yandex got 90 percent of third-quarter revenue from text-based ads.

“Yandex remains well positioned as the Russian search leader,” Jean Kaplan and Herve Drouet, London-based analysts at HSBC, wrote in the report. “We see contextual advertising as the fastest growing, most scalable, and resilient segment within Russian media, and we expect Yandex to remain dominant.”

Web advertising in Russia, home to at least 16 million Internet users, rose 35 percent in 2012, outpacing 13 percent growth in total advertising, according to an Association of Communication Agencies of Russia report this week.

While Yandex surpassed Bing by number of searches, it trailed Google Inc., Beijing-based Baidu Inc. and Yahoo! Inc., Reston, Virginia-based ComScore said yesterday.

‘Nowhere Near’

Searches on Yandex rose to 4.6 billion in November and 4.8 billion in December, while the tally for Bing held at 4.5 billion in both months. The Russian Internet company had the lowest number of so-called unique searchers among the world’s five biggest providers, the data showed. Yandex had 74.4 million users in December, compared with 268.6 million for Microsoft, according to ComScore.

“Russian speakers prefer Internet searches in Russian, and Yandex firmly holds the biggest share, competitors are nowhere near it,” Konstantin Chernyshev, the head of research at UralSib Capital Corp., which rates Yandex a buy, said by phone from Moscow yesterday. “The Russian Internet advertising market expands and Yandex wins. You don’t advertise your shoe repair kiosk on national television, you advertise it on Yandex.”

Online advertising in Russia will rise by an average 22 percent a year between 2013 and 2016, Chernyshev said.

‘Russian Audience’

“It’s thanks to the Russian audience that the number of Yandex searches grew,” Tatiana Komarova, a Moscow-based spokeswoman for the company, said by e-mail yesterday. “Internet penetration is still low in Russia and it continues to grow by adding older people and residents of small towns.”

Russia had 16.1 million IPv4 addresses in the third quarter of last year, compared with 99 million in China, 145 million in the U.S. and 683 million worldwide, according to Akamai Technology’s State of the Internet report released last month. Internet penetration in the world’s largest energy exporting nation grew 23 percent year-on-year, the data showed.

Tara Gremillion, spokeswoman for Waggener Edstrom Worldwide, a media relations company for Microsoft, didn’t respond to an e-mailed request for comment on the ComScore rankings when contacted yesterday.

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

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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