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After LinkedIn’s euphoric IPO, lets move onto the next big Internet IPO scheduled for next week. Russia’s Yandex is set to complete the biggest internet IPO since Google, as investors wary of much-hyped social networks look instead for exposure to the fast-growing online advertising market. Russian search giant Yandex N.V. (NASDAQ:YNDX) is scheduled to price Monday, May 24th. The company plans to list on the NASDAQ. The offering has been said to be oversubscribed since day one of the company roadshow, and books are now rumored to be closing today (May 20). Yandex is offering 52.2 million shares at $20.00 to $22.00. Of the shares offered, 15.4 million are primary shares offered by the company, and 36.8 million or about 70 percent are secondary shares offered by selling shareholders, including Tiger Global Holding, Baring Vostok Private Equity funds, Roth Advisors, International Finance Corp., and current directors and members of management. Yandex’s offering, which seeks to raise as much as $1.15 billion, follows an initial offer by Chinese social-networking website Renren Inc. earlier this month. Net proceeds to the company of approximately $305 million are expected to be used for general corporate purposes, including investments in technology infrastructure. The lead underwriters on the offering are Morgan Stanley, Deutsche Bank, and Goldman Sachs. The $21 midpoint of the offering range would value Yandex at $6.75 billion. A Russian comparable is Mail.ru, which went public in November, raising $912 million. That would make it the biggest IPO by an internet firm since Google raised $1.67 billion in 2004.

About Yandex

Yandex plans to use IPO proceeds to invest in technology infrastructure, especially new servers and data centers, and for possible acquisitions of or investments in technologies, teams and businesses.

HISTORY/OWNERSHIP/BUSINESS

Yandex was founded by Arkady Volozh and Ilya Segalovich in 1997 as search engine www.yandex.ru for the Russian Internet users. It has since established businesses in Ukraine (yandex.ua), Kazakhstan (yandex.kz) and Belarus (yandex.by). Launched worldwide search at www.yandex.com in May 2010.

Main shareholders prior to the IPO: Baring Vostok Private Equity Funds with a 24.49 percent stake, Arkady Volozh (20.27 percent), Roth Advisors (6.58 percent), International Finance Corporation (6.27 percent), Ilya Segalovich (4.24 percent).

Main shareholders’ stakes after the IPO: Baring Vostok Private Equity Funds with 25.97 percent, Arkady Volozh (19.77 percent), Roth Advisors (5.95 percent), International Finance Corporation (5.51 percent), Ilya Segalovich (4.15 percent).

In autumn 2009 Yandex handed over a ‘golden share’ in its Netherlands-registered parent company Yandex N.V. to Russian state bank Sberbank, giving it a right to veto any future deal that would see a single shareholder acquire a stake of more than 25 percent.

Full-year 2010 revenue rose 43.2 percent to 12.5 billion roubles ($445.2 million) to U.S. Generally Accepted Accounting Principles (GAAP). First-quarter 2011 revenues stood at $137 million.

Net profit rose to 3.8 billion roubles ($135.3 million) in 2010 from 2 billion roubles in 2009. First-quarter 2011 net profit amounted to $28.8 million.

The number of advertisers rose by more than 40 percent in 2010 to 180,000.

Yandex owns 65% market share (a/o March 2011) of all search traffic in Russia, well ahead of number two Google with 22% share. Their share of search traffic has grown from 58% in March 2009. The yandex.ru website is also the most popular online destination in Russia with 38.3 million monthly unique visitors, ahead of Mail.ru (35.7M), Vkontakte (31.6M) and Google (28.4M). Aside from being the leader in search, the company also claims to be number one in news, mobile applications, online advertising platform, maps, and market comparison shopping. It is number 2 in mail, behind mail.ru.

Yandex LLC became profitable in November 2002. In 2004, Yandex sales increased to $17M, which was 10 times greater than the company’s revenue just 2 years earlier. The net income of the company in 2004 constituted $7M. In June 2006, the weekly revenue of Yandex. Direct context ads system exceeded $1M. All of Yandex’s accounting measures have been audited by Deloitte Touche since 1999.

Yandex has grown revenue at a 59% from 2006 to 2010, to $440M in 2010. Adjusted EBITDA and adjusted net income were $217M and $140M respectively in 2010. The company derives the majority of revenue from online advertising. It currently has 58% market share in online advertising, with over 180k advertisers. Revenue at Yandex, most of which comes from advertising, jumped 65 percent in the first three months of 2011 from a year earlier, to 3.89 billion rubles ($138 million), the prospectus showed. Net income increased 62 percent to 820 million rubles.

When comparing Yandex with Chinese peers, such as Baidu, Inc.(BIDU), the offering looks to be an attractive discount based on forward P/E estimates. A better comp, however, would be fellow Russian company Mail.ru, which completed its IPO listing in Nov. 2010, on the London exchange. The company went public at $27.70, and is currently trading at approximately $36. Yandex appears to be coming about in line to a slight discount to Mail.ru on a forward P/E basis, and more of a discount on a forward adjusted EV/EBITDA. The wildcard in the valuation for Mail.ru is that a large portion of the valuation comes from its minority interests in such companies as Facebook, Groupon and Zynga. However, the underlying business of Yandex is arguably stronger and faster growing than that of Mail.ru.

The Yandex offering also faces some risks associated with operating within Russia. There has continually been some concern about Russian political risk. However, it appears that investors seeking growth and exposure to the fast growing Russian Internet sector are willing to take this risk. The Yandex offering has been highly anticipated for the last three years, when the company’s intentions to go public were originally announced, and based on heavy demand for the offering it appears to be in line to be yet another successful Internet IPO. Who knows, Yandex could eventually become a takeover target for Google if the Californian giant struggles to grow market share in Russia.

Tags: (NASDAQ:YNDK)internet stocks, .com, Arkady Volozh, Baidu, Google, Ilya Segalovich, Internet stocks, ipo, IPO's, LinkedIn, LNKD, mail.ru, RENN, RenRen, Russia Google, Russia's Google, Search engine

This entry was posted on Friday, May 20th, 2011 at 4:57 pm and is filed under Contributors, Facebook feed, Technology Stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.