By: Gigaom
April 26, 2012 at 10:19 AM EDT
Yandex: ‘Plenty of room’ despite growing Google threat
Russia's most popular search engine, Yandex, has lost a significant chunk of its market share over the past year -- but announcing a 50 percent increase in profits for the first quarter of this year, CEO Arkady Volozh says there's still lots of room to keep growing.

How big can Russia’s No 1 search engine really get? That’s the question facing Yandex after a relatively strong quarter failed to excite investors — perhaps indicating concerns about the long-term future of the business have not been entirely killed off.

Announcing its latest financial results, the Moscow-based company said that it beat expectations to post $200 million of revenues, with net income for the first quarter of 2012 up to 1.26 billion rubles ($43 million). That’s 53 percent higher than the same time last year, continuing the company’s growth curve.

But some had already worried that profits were down significantly on the end of 2012, where profit was more than $71 million. And, more importantly, Yandex is slowly losing market share in Russia to Google — with the percentage of searches on Yandex down to 59 percent. A year ago it was riding high at 65 percent.

And that’s had an impact on the company’s stock since it went public last year.

In a call to media and analysts, CEO Arkady Volozh said the drop from the end of last year was largely down to the seasonal trend for a depressed advertising market, and that the company was doing well in lots of new regions as well as remaining strong at home.

“There is still a lot of room for growth,” he said, both in Russia and in other territories — despite the massive growth of Google’s Chrome browser, which gives its Californian rival a leg up in search volumes.

“We sustained the market share and we’re still in the ballpark of 60 percent share, despite serious changes on the distribution front and complete change on the browser front,” said Volozh. “We grew faster than analysts expected last year and we continue to grow faster this year than expected. Finally, our Turkey launch will take a lot of time and effort, but the early results actually encourage us a lot.”

As it looks to boost growth, Yandex has been developing new products — a real-time search partnership with Twitter, for example, and map licensing from Navteq. It’s also broadening its base by moving into the Turkish market, and putting money into seed investment projects.

The markets reacted slowly, however, and as the exchanges opened in New York, the company’s shares were relatively flat.

In part, that’s a settling of sentiment about the company after its public flotation last year, which ended up being one of 2011′s biggest tech IPOs.

But it’s also a recognition of Google’s slow but growing influence in the Russian market. Now responsible for more than a quarter of local searches, Google is — of course — a behemoth compared to Yandex. But as time goes on, many worry that the Mountain View company could bring its considerable financial power to bear on Europe’s biggest internet market.

And given that in the last three months Google made as much profit in 36 hours as Yandex made in the entire quarter, there may be plenty of reason to worry.

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