There's no doubt you've heard of Google (NASDAQ:GOOGL), the world's largest search engine, and parent of the most oft-visited website in the world. If you're an investor or someone who travels to Asia, you're probably also familiar with Baidu (NASDAQ:BIDU), the world's second-most popular search engine, which is centered in China.
But how many of you are familiar with Yandex (NASDAQ:YNDX)? This relatively underappreciated company is behind Russia's most popular search engine. Read below to see why shares of the company fell by as much as 10% yesterday, and what it means for investors. At the end, I'll offer up access to a special premium report on one of the biggest opportunities in search.
Just the numbers
If you were to look at Yandex's numbers in a vacuum, you'd likely be impressed. For the fourth quarter of 2012, the company was able to grow revenue by 37%, while adjusted net income was up 35%.
At the same time, the company's share of the Russian search market was a healthy 60.5%, while search queries were up 26%, and the number of clients using Yandex for advertising grew 22%. Overall, Yandex's main Russian site ranks as the 20th most visited website in the world.
All of these numbers are pretty impressive, and point to the potential market opportunity when you consider that Russia and the former Soviet bloc states have a combined population of roughly 290 million people.
So what's the problem?
The reason behind yesterday's sell-off seems to be twofold. For starters, the company is predicting slower revenue growth for 2013 than it achieved in 2012. It's hard to say if the company is just low-balling its estimates, or if revenue really is going to slow more than investors thought it would. Personally, I don't see a huge problem, as even the "disappointing" guidance calls for about 30% growth in revenue.
Second, investors are concerned that expenses are outpacing revenue growth. If you've invested in either Baidu or Google, you should be quite familiar with this story.
Back in 2010 and 2011, when Larry Page took over the reins at Google, he made it clear he'd be spending a lot to invest in the future, especially mobile search. Though the market initially balked, his plans have turned out nicely.
Baidu, on the other hand, is in the middle of its "investing-for-the-future" stage, as Wall Street has punished the company's stock for rising expenses even though growth continues to be impressive.
It seems to me that Yandex is just beginning this phase. There's no telling if things will play out positively for Yandex the way they seem to be for Google. But I see enough here to warrant an outperform CAPScall for the company on my All-Star CAPS profile.