This BRIC Rockstar Is Poised to Outperform

Ishfaque is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Its quite unusual to see a company that goes up against Internet giant, Google (NASDAQ: GOOG) and win big time. Russian search leader, Yandex (NASDAQ: YNDX) is clearly doing that, and by a big margin too. Yandex operates the most popular search engine and the most visited website in Russia.

Search Dominance

In the long run, the best way to have a long lasting competitive advantage, is to dominate a market space, and Yandex is living that reality with a market share of 60.2% in the Russian search market. The only other very dominant search engine amongst BRIC countries, happens to be Chinese search leader, Baidu (NASDAQ: BIDU). These two companies have managed to muscle out Google in their respective markets, by virtue of their local market knowledge, superior content and strong advertising relationships in their home countries. 

Yandex's market share of 60.2% is substantially greater than second placed, Google, which commands only 26.5% of the Russian search market. The two other notable players in the Russian search marketplace are which holds 8.7% and Rambler which holds 1.3% , as reported by last month. 

Global Ranking 

According to comScore data as of October 2012, Yandex is the 5th largest search property in the world with 4.5 billion searches. The top four search properties in the world, in order, are Google, Baidu, Yahoo! (NASDAQ: YHOO), and Microsoft (NASDAQ: MSFT). Yandex ranks right behind the usual suspects in the global search market. While Bing and Yahoo, both operate in Russa, their market share of the search market is immaterial and is not amongst the top four operators. And Yandex is actively closing in on Bing, and might oust Bing's title due to stellar growth, and become the fourth largest search property in the world.

<table> <tbody> <tr> <td colspan="2"><strong>Worldwide Top-10 Internet Search Properties</strong></td> </tr> <tr> <td>Company </td> <td>Bn Searches</td> </tr> <tr> <td><strong>Google </strong></td> <td>114.4</td> </tr> <tr> <td><strong>Baidu</strong></td> <td>13.9</td> </tr> <tr> <td><strong>Yahoo</strong></td> <td>8.9</td> </tr> <tr> <td><strong>Microsoft</strong></td> <td>4.5</td> </tr> <tr> <td><strong>Yandex</strong></td> <td>4.5</td> </tr> <tr> <td><strong>eBay</strong></td> <td>3.8</td> </tr> <tr> <td><strong></strong></td> <td>3.8</td> </tr> <tr> <td><strong>Qihoo 360</strong></td> <td>2.8</td> </tr> <tr> <td><strong></strong></td> <td>1.6</td> </tr> <tr> <td><strong>NHN Corp.</strong></td> <td>1.4</td> </tr> <tr> <td colspan="2"><em>Source: comScore (October 2012), Company Data</em></td> </tr> </tbody> </table>

Internet Penetration Rate and Ad Market Growth in Russia

Yandex currently boasts of 50+million unique visitors per month, which makes it the largest Internet property in Russia. Russia has the highest Internet penetration rate as a proportion of Internet users amongst the BRIC Countries, and stands at slightly higher than 50%. Internet penetration rates in Brazil and China are lower than 40%. 

The Russian Advertising market is following the global pattern, and is increasingly shifting towards online. The online portion as a % of total ad spend is expected to end 2012 at ~20% and is expected to grow to 26% by 2014. And the online ad market is expected to grow at a CAGR of roughly 31% in the next 3 years, compared to a paltry growth of 9% for total offline, according to ZenithOptimedia.

International Expansion

In addition to Russia, Yandex also operates in Turkey, its first International Market, outside the CIS Countries. and is already doing well. Turkey has a strong Internet penetration rate of roughly 46%, and its online ad market is expected to grow to $400m by 2014, according to comScore. 

Key Drivers for Yandex

  • Mobile Positioning:Yandex is very well positioned in mobile. It has already become the default search engine in WinPhone 8 in the countries that it operates i.e Russia, CIS Countries and Turkey and building newer partnerships with other mobile operators.
  • A Robust eCommerce Platform was built by Yandex for an online shopping experience similar to Amazon, called Yandex.Market. And it gained solid traction with more than 13M monthly users, as reported by comScore.
  • Top online advertising platform and has been growing the number of advertisers substantially in each of the last 9 quarters. It had more than 290000+ advertisers using its platform in the first nine months of 2012. Paid clicks are up 35% Y/Y and Text-based Ads are up 39%.
  • Consistent Leader: It has been the go to search platform in Russia for a while now and its market share has hovered around 58%-64% since Q4 of 2009.
  • Strong Growth in Top and Bottom Lines: Its revenues are up 41% Y/Y to end Q3 of 2012 at $235.2m and net income is up 34% Y/Y to $74.2m.
The Takeaway
Yandex has managed to keep its market leading position in search engines and eCommerce, while increasing its footprint overseas. And in addition, it managed very solid top and and bottom line growth, and gave quantitative guidance to grow around 40-45% in Q4. It has a clean balance sheet, going through a high growth phase and high net income margins. Surely, this Rockstar will Outperform in 2013.


ishfaque has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu, Google, and Microsoft. Motley Fool newsletter services recommend Baidu, Google, Microsoft, and Yandex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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