Is Yandex the Next Baidu?
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Chinese search engine Baidu (Nasdaq: BIDU ) has ridden high on its casual nickname of "the Google of China." Back when Russian search engine Yandex (Nasdaq: YNDX ) went public last year, it was mostly billed as the "Google of Russia." Can Yandex be the "Baidu of Russia" and live up to the growth potential? Not if Google (Nasdaq: GOOG ) has any say it in, since Google wants to be the "Google of Russia" just as it's become the "Yandex of America."
Yandex reported fourth-quarter and full-year figures last night, and shares are currently down about 6% as of this writing. Revenue for the fourth quarter jumped 56% to $200 million, while excluding traffic acquisition costs, or ex-TAC, bumps that growth figure down to 50%. Net income similarly soared by 51% to $65.9 million, or $0.20 per share. The Street was looking for a little more up top and a little less down below.
For the full year, sales jumped 60% to $622.2 million, with ex-TAC growth of 56%. The bottom line increased by 51% to $179.3 million net income, or $0.55 per share.
Those are some hefty growth figures and partially help justify Yandex's lofty valuation, with shares trading at 45 times earnings. What are investors so worried about? The future. The company's 2012 outlook forecasts revenue growth in the range of 40% to 45% for the full year, measured in local currency, a stark deceleration. The company also sees Google becoming more of a threat in the country, along with competition from local rivals.
According to figures from LiveInternet, Yandex's Russian market share has slipped from 64% at the end of 2010 to 59% recently. That's not a major loss, but it could be troublesome if it's the beginning of a bigger trend. Yandex CFO Alexander Shulgin said: "The slowdown is a natural process. The growth is now driven by increasing activity and not user numbers." Yandex also said Russian Internet usage is nearing saturation, further limiting its growth prospects.
I don't think Yandex has Baidu-esque growth potential, but it's being priced as if it does, with Baidu currently trading around 43 times earnings. Baidu just reported earnings last week, and its bottom line jumped 77%. That's why I'm also giving Yandex an underperform CAPScall today, since I don't think it can deliver the growth that investors are asking for.
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