Russia’s Yandex: Revenue Up, Share Price Down

Yandex, Russia’s biggest search engine and online services company, has just posted its fourth-quarter earnings, showing 37 percent revenue growth. However, the results came in below estimates, and the 40 percent rise in marketing and product development costs has sent the company’s share price plummeting compared with the shares of its main competitor, Google.

Some analysts have noted that Yandex could be spending too much money in order to stay competitive – although earlier this month, it topped Bing to become the fourth most popular search engine in the world, based on the number of processed search queries.

Damned if you do

Yandex operates a business model very similar to that of Google, but attuned to the Eastern European market. In 1997, the company created its proprietary search engine, and has since expanded into email, navigation, news and media, e-commerce, online advertising and other related markets. Similarly to Google, Yandex also makes its own Chromium-based Web browser.

In 2011, it actually beat the Silicon Valley giant to the ‘social search’ function, after negotiating a deal with Twitter that would see content from the microblogging platform indexed and made searchable through Yandex.

However, the company’s fourth quarter results have disappointed investors, with revenue growing slower than expected. In the three months ending with December, Yandex made 8.8 billion roubles (£190.5m). Meanwhile, over the course of the year, its costs  swelled to 25 percent of revenue, up from 23.5 percent in 2011.

“Expansion outside of Russia as well as maintaining the company’s current market share in the home market comes at a cost,” Anastasia Obukhova, an analyst at VTB Capital, told Bloomberg. “The cost seems to be unjustified and is just too high.”

According to Bloomberg, Yandex lost 10 percent off its share price following the results on Tuesday, trading at $23.01 on NASDAQ. It has somewhat recovered since, and shares are valued at $23.76 at the time of writing.

Analysts are concerned that growth in 2013 might be even slower. Yandex itself predicts a 28-32 percent rise in revenue in 2013, and says that the somewhat disappointing guidance for 2013 is explained by the sharp slowdown in online advertising market.

“Yandex delivered strong fourth quarter and full year 2012 results with robust revenue growth, solid search share and a continuing stream of important innovations,” said Arkady Volozh, CEO of Yandex. “In Q4, we launched key products aimed at improving the user experience, including new mobile apps, personalized search and our Yandex.Browser, which has already captured a considerable share of the Russian browser market.”

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