Yandex operates a number of web sites and services including Russia’s most-popular internet search engine (~60% market share), which uses the company’s proprietary algorithms, as well as other services including Yandex – Maps, Mail, Videos, Classifieds, product comparison, weather and Yandex.Market. The company has recently expanded into providing mobile applications as well as its own proprietary browser. Geographically the company serves primarily the markets of Russia, Ukraine, Belarus, Kazakhstan and Turkey
Yandex generates currently 97% of its revenues from online advertising and accounts for over half of Russia’s online media spend. We believe this positions the company well for both rising ad spend as well as the structural shift from traditional to online advertising
Google has a solid #2 position in Russian search and since entering the market has been able to steadily grow share to ~25%, primarily from smaller competitors. Yandex has been able to consistently defend its dominant position from Google and we believe the company will continue to be able to do so in the future.
In our view Yandex is a rather straightforward business to analyse due to the fact that Yandex’s business is 1) essentially all online advertising, which accounted for 98% of FY12 revenues and 2) substantially all revenues came from a single market, Russia (95% of FY12 revenues). In addition, information on the Russian advertising market (volume, growth trends, and composition) is readily-available from AKAR.
On 27 July, Yandex tragically suffered the loss of its co-founder and CTO Ilya Segalovich. In our view, the full implications of the loss of Mr. Segalovich on the future of Yandex are not clear. However, the loss of a co-founder and CTO of a technology company should not be underestimated. Yandex derives essentially all of its revenues from advertising, which is likely to make it more sensitive to macro trends and more dependent on the structural shift of advertising mix from traditional media to online.