The share price of Russian search giant Yandex, introduced on NASDAQ in May, hit a historic low yesterday at $21.17 before closing at $22.6 – well below the company’s IPO offer price of $25 and almost two times below the peak level, $42.01, reached shortly after the stock was listed.
Investor defiance peaked on Wednesday when the share price fell by 13.1% to $22.9 following the publication of new figures detailing the company’s market share on the Russian search market. From September 1 to September 26, Yandex generated just 61.4% of all visits to other sites generated by search engines, down from 63% in August, according to web statistics service LiveInternet.ru.
The fluctuation has been interpreted as a sign of the frailty of Yandex dominance on the national market now besieged by competitor Google.
The share price of Yandex hit a historic low (Source: NASDAQ)
Insignificant ups and downs or seismic shift?
In a press release published yesterday, Yandex attributed the recent drop in its market share to “increases in searches on Chrome browser-enabled devices, among other things.”
Yandex, nevertheless, reaffirmed its revenue guidance for 2011, which calls for a ruble based revenue growth of 55%-60%. It also emphasized that search shares fluctuate constantly, and that it has already “experienced periods in which its market share temporarily declined due to changes in the competitive environment.”
Yandex’s market share indeed fell from 60% in 2006 to 51% in 2008, while Google, asserting itself aggressively on the Russian market, saw its own share rise from 6% to 18%. Yandex counter measures in 2008-2009 had effect, however, and Google stopped gaining market share in spite of increasing marketing efforts. In 2010, its position even dropped 1.9 points to 21.5% of the market.
The recent fluctuation is not a big deal, agreed David Reynolds of Jefferies & Co., a US based securities and investment banking group, in an exchange with US financial site Barron’s. “These kinds of shifts go on all the time. Is it the beginning of a seismic shift in Russia [search engine market share]? I suspect not.”
The week before Yandex shares fell on the stock exchange, Reynolds had initiated his company’s Yandex coverage with a Buy rating and a $40 price target. “The metrics are established – first rate, scalable search technology integrated with an innovative, dynamic advertiser platform captures online advertising revenue very efficiently,” the analyst wrote.
Reynolds thinks Wall Street underestimates the company’s growth prospects with a Russian online ad market in better shape than many believe. Yandex could grow just as Google and China’s Baidu have in past, according to the analyst’s flattering comparison.
Yandex captured over the half of the Russian online advertising market, which MindShare Interaction estimated at 21.86 billion rubles, or $729 million, in 2010, an increase of 40% from 2009.
Patching up PR blunders
This week’s drop in the Yandex share price may also have come as a result of communications blunders committed by the company’s top management during a meeting with a group of hedge funds during the week.
The meeting was aimed at reassuring the investors, concerned with the decrease in Yandex market share on the Russian search market. Something went awry at the meeting, however, with Yandex CEO Arkady Volozh apparently speaking too candidly about the company’s issues.
In an attempt to patch up the damages, Yandex sent a letter to investors – quoted by Barron’s – linking the drop in share price to the failed meeting.
“Among other things during the meeting, investors asked questions about the recent declines in our share of Russian language searches according to Liveinternet.ru and what the specific causes behind this were. The response that Arkady Volozh, our CEO, gave to these questions, although frank and straightforward as usual, may have been misinterpreted as very gloomy and downbeat.”
“As you know, Arkady takes a great pride in the company he built and a decline in the share of searches is at the front of his focus. We are sorry that frankness in communications with investors has been abused,” the letter concluded.
Reynolds sharply criticized the Russian company’s corporate communications. “They are absolutely woeful,” he said to Barron’s, referring to the meeting.
It was “incredibly naive to entertain hedge fund managers just three days before the end of the quarter,” Reynolds added.
