Shares of Yandex (YNDX) have rallied since the company released an impressive third quarter earnings report earlier this week. The Russian tech company's revenue rose 39% year over year to 32.6 billion rubles ($496.6 million), beating estimates by $29 million and marking an acceleration from its 37% growth in the second quarter. Excluding Yandex.Market (which was deconsolidated), Yandex's revenue rose 44% annually.

Yandex's net income surged 459% to 4.8 billion rubles ($72.7 million), or $0.23 per ADS, which beat estimates by $0.01. On an adjusted basis -- which excludes forex, stock-based compensation expense, and certain one-time losses and gains -- Yandex's net income rose 157% to 6.1 billion rubles ($93 million). Adjusted EBITDA grew 88% to 10.7 billion rubles ($163.5 million).

Moscow's skyline.

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Yandex also raised its full-year revenue growth guidance (excluding Yandex.Market) from 30%-35% to 35%-38%, compared to the consensus forecast for 31% growth. Yandex didn't provide any bottom line guidance, but analysts anticipate 32% EPS growth this year. Yandex's growth looks great for a stock that trades for just 21 times its projected 2019 earnings, but the market seems to hate higher-growth tech stocks in emerging markets right now -- regardless of their long-term growth prospects. Let's take a closer look at Yandex to see if investors should take the contrarian view.

Understanding Yandex's business

Yandex owns the largest search engine in Russia. It controlled 53% of the country's search market in September, according to StatCounter, compared to a 43% share for Alphabet's (GOOG -1.86%) (GOOGL -1.84%) Google. Google has a higher overall share of the mobile search market, but Yandex recently overtook Google on Android devices in Russia.

Like Google, Yandex has leveraged its lead in the search market to expand its ecosystem into adjacent markets. Its ecosystem includes cloud and email services, the Yandex.Browser, a virtual assistant called Alice, smart speakers, AI-powered recommendations tools, streaming videos, rides and food deliveries from Yandex.Taxi, and online payments from Yandex.Checkout. It also recently launched a carsharing service called Yandex.Drive and a dedicated e-commerce platform called Beru.

Analyzing Yandex's growth

Yandex generates most of its revenue from online advertising. Online ad revenue rose 18% last quarter and accounted for 80% of the company's top line. Within that total, ad revenue from Yandex's own properties rose 22%, while ad revenue from the rest of its ad network grew 7%.

Yandex noted that its average cost per click rose 5% year over year, its paid clicks climbed 13% (or 22% excluding clicks at Yandex.Market), and its total search queries rose 12%. Its core search and portal revenue rose 26% annually, and Yandex expects that figure to rise 21%-23% for the full year.

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Yandex's traffic acquisition costs (TAC) rose 20% annually, but only accounted for 16.3% of its total revenue -- which represents a 250 basis point drop from the prior-year quarter. This indicates that as the market leader in search advertising, Yandex doesn't need to rely too much on referrals to generate traffic. However, Yandex attributed some of its TAC growth to rising Android revenue -- which indicates that it's spending more money to fight Google on its home turf.

Meanwhile, Yandex's "other" revenue surged 327% annually and accounted for the remaining 20% of its top line. Yandex attributed that growth to higher revenue from Yandex.Taxi (which merged with Uber's Russian unit in early 2018) and Yandex.Drive, which was launched earlier this year. Its media and classified units also generated high double-digit sales growth, but the two units combined accounted for less than 4% of Yandex's top line.

Evaluating Yandex's future

Yandex is still firing on all cylinders and has plenty of irons in the fire, but it faces some formidable headwinds. A weak ruble and a strong dollar could significantly diminish returns for U.S. investors, sanctions against Russia could throttle its economic growth, and Google could ramp up its efforts in Russia -- especially after its leaked plans for China were met with a fierce public backlash. I personally like Yandex, but I won't buy it until some of those headwinds fade and the marketwide hatred for emerging market growth stocks wanes.