April 20, 2024

DealBook: Yandex’s Surge on Debut Stirs More Talk of Tech Bubble

Yandex’s chief, Arkady Volozh, center, and other executives cheer the start of Nasdaq trading in their company’s shares.Mike Segar/ReutersYandex’s chief, Arkady Volozh, center, and other executives cheer the start of Nasdaq trading in their company’s shares.

Shares of Yandex, a Russian search engine barely known in the United States, surged by more than 55 percent on Tuesday, signifying the latest multibillion-dollar technology offering and stoking the debate about whether this market has the makings of a bubble.

The debut of Yandex defied already lofty expectations, coming on the heels of the initial public offering of LinkedIn, the professional networking site whose shares more than doubled on their first day of trading.

The Russian company, whose shares were priced as much as 25 percent higher than earlier estimates, raised $1.3 billion, the largest Internet offering in the United States since Google went public in 2004. The stock closed at $38.84 on Tuesday, up from $25 at its I.P.O.

“Yandex serves as yet another data point that we are at the start of a growth cycle for I.P.O.’s,” said Paul Bard, the director of research for the I.P.O. advisory firm Renaissance Capital. “Over all, investors have been starved for innovative, rapidly growing enterprises in new industries.”

But the strong demand — even fervor — for technology offerings is once again fanning concerns about market froth. In recent weeks, a number of multibillion-dollar Internet companies have enjoyed robust first-day pops like Yandex and LinkedIn, drawing unfavorable comparisons to the ill-fated dot-com boom.

Renren, called the Facebook of China, jumped 29 percent after its I.P.O. in early May. LinkedIn, which had recently traded in the secondary markets at an implied valuation of $2.5 billion, is now worth more than $8 billion.

As befitting a technology start-up, Yandex had scrappy beginnings. A Russian mathematician, Arkady Volozh, and geophysicist, Ilya Segalovich, founded the company in 1997, using an algorithm they invented to scan the Cyrillic script of the Russian Bible and classical literature.

The country’s programmers have traditionally excelled at mathematically complex tasks like those involved in searches, tapping a rich tradition of scientific education in the Soviet Union.

The Yandex offering underscores the appeal of companies with a strong claim to a rapidly expanding sector — Internet advertising — in emerging economies that are projected to grow more swiftly than those of in the United States and Western Europe. Such companies are valued for knowing how to navigate the Web and the delicate politics of their home markets.

Investors have closely watched Yandex, based in Moscow, since the sharp rise in the value of the Chinese search engine Baidu, another regional challenger to Google. Baidu rose 354 percent on its first day of trading in August 2005, the biggest one-day pop since the dot-com bust, according to Renaissance Capital. Although shares slumped following the I.P.O., the company now trades at nearly $130, up from its offering price of $27.

The Russian Internet market is the second largest in Europe, after Germany, according to a report released on Friday by the Boston Consulting Group. The report estimated online commerce in the country will increase to 3.7 percent of the gross domestic product by 2015 from 1.9 percent in 2009, as broadband makes its way into the Russian provinces.

Yandex, which caters to the world’s roughly 270 million Russian speakers, generates more searches in Russia than Google. It is also profitable, earning a net income of $134.3 million on revenue of $439.7 million last year.

“This is the Google of Russia,” said Scott Sweet, a senior managing partner of I.P.O. Boutique. “They are profitable, their growth is outstanding and they have over 60 percent market share.”

Still, the company faces significant political risk, as Yandex indicated in a regulatory filing. While President Dmitri A. Medvedev of Russia has often expressed desire to expand online commerce as an outlet for the country’s rich scientific legacy, tight government control of political news could intensify as Internet use expands.

Just last month, a deputy director of the Federal Security Services, the successor agency to the K.G.B., said authorities were studying whether to ban sites like Skype or Google’s G-mail that use encryption inaccessible to Russian law enforcement agencies.

A Russian government commission is expected to present its recommendations on how such sites might be closed later this year. Some interpretations of a 1993 law on encryption suggest these sites would be illegal if a Russian-based subsidiary charged for their services.

Yandex’s founders originally planned an offering in 2008. But they delayed it after the onset of the global recession.

During that time, they negotiated the sale of a symbolic stake to a Russian state controlled bank, Sberbank, in an indication of the political risks of rising Internet use in Russia. Other co-owners of Yandex today include Tiger Global, an American investment firm; Baring Vostok, a Russian-focused fund; and the World Bank’s International Finance Corporation.

“This is a demarcation point,” for Russian Internet businesses, said Peter N. Loukianoff, a co-founder of Almaz Capital Partners, a venture capital firm and an early investor in Yandex. The listing, he said, signals a new phase of “intellectual wealth creation in Russia,” a country where most billionaires made their money on the privatization of oil fields and mines.

“Russia now has a Steve Jobs and Steve Wozniak,” he said of Mr. Volozh and Mr. Segalovich.

Yandex follows the $912 million offering last year of Mail.ru, a Russian Internet conglomerate that owns a minority stake in Facebook. In a sign of the country’s growing prominence on the global scene, the chairman of the company, Yuri Milner, recently bought a $100 million home in Silicon Valley.

Article source: http://dealbook.nytimes.com/2011/05/24/yandexs-surge-on-debut-stirs-more-talk-of-tech-bubble/?partner=rss&emc=rss

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