Yandex lifts IPO price in Internet frenzy

NEW YORK/MOSCOW Mon May 23, 2011 10:59pm BST

People walk near the headquarters of Yandex company in Moscow May 23, 2011. REUTERS/Sergei Karpukhin

People walk near the headquarters of Yandex company in Moscow May 23, 2011.

Credit: Reuters/Sergei Karpukhin

Quotes

   

NEW YORK/MOSCOW (Reuters) - Russian Internet company Yandex on Monday raised the price guidance for its Nasdaq initial public offering, responding to strong investor demand after LinkedIn Corp's blowout debut last week.

Yandex, Russia's most-popular search engine, plans to sell shares at between $24 and $25 apiece, above an earlier range of $20 to $22, a source close to the issue told Reuters. The IPO is expected to price later on Monday.

At that price, Yandex's IPO would be the biggest by an Internet company since Google raised $1.7 billion (1 billion pounds) in 2004 -- and IPO analysts say could be quite comparable to Google or its Chinese peer Baidu Inc, which rocked U.S. markets with a 354 percent jump in its debut in 2005.

"Every Internet company that's come on the market recently wants to be the next Baidu.com ... It really is the 'Google' of China," said Anthony Moro, managing director and head of emerging markets for BNY Mellon's depositary receipt division.

"Everything else tried to be the 'Facebook' of this or the 'Amazon' of that, but Yandex really is the 'Google' of Russia ... They're a huge and growing brand."

Baidu, China's biggest search engine, has grown into one of the world's top brands since its skyrocketing Nasdaq float in August 2005.

Similar to Baidu's reach into China, Yandex is a way to buy into fast-growing Internet markets in Russia and neighbours. At the higher price range, its IPO could raise as much as $1.3 billion to value the company at up to $8 billion.

"There have been rumours the IPO was five to 10 times oversubscribed. And on the wave of last week's deals, including LinkedIn, we can expect a fully successful placement," said Konstantin Chernyshev, head of research at Uralsib in Moscow.

LinkedIn shares more than doubled after the company's IPO last week, bringing back memories of frothy valuations that preceded the dot-com bust of a decade ago.

"I don't know if you'd get such a huge pop (with Yandex) as you did with LinkedIn," said Darren Fabric, managing director at IPO investment firm IPOX Schuster LLC. But "it should trade fairly well on its first day even with the market volatility."

U.S. stocks closed at their lowest levels in a month on Monday, in contrast with the resilience seen in the market at the time of LinkedIn's IPO.

LinkedIn is currently trading at 34 times 2010 sales, while Google shares are now worth just under six times 2010 sales. If Yandex IPO prices at $24.50, the midpoint of the higher range, its shares would be worth almost 18 times 2010 sales.

That valuation is "quite lofty," said Rick Summer, a technology analyst at Morningstar. But with Baidu's performance and investor appetite for high-quality Internet stocks, Yandex could sustain those valuations in trading, he said.

Yandex controls 65 percent of the Russian market for Internet searches, almost three times more than global leader Google. Yandex fans also highlight the company's record of profitable growth, driven by online advertising: In 2010, earnings rose 90 percent to $135 million on sales that grew by 43 percent to $445 million.

NO QUICK FLIP

Investors may be reassured by the fact that the duo who founded Yandex in 1997 -- Chief Executive Arkady Volozh and Chief Technology Officer Ilya Segalovich -- will retain most of their holdings.

Volozh, who has a degree in applied mathematics, began working on search technology in 1989. A year later, he started his own search software developing firm, where he was joined by Segalovich, a geophysicist. In 1997 they launched the yandex.ru website, which in March was used by 38 million unique users.

Yandex's search algorithm, originally developed to conduct keyword searches of patents, Russian classical literature and the Bible, was a breakthrough as it accounted for the Russian language's complex case endings.

The duo invented the name "Yandex" -- with "Ya" standing for the Russian equivalent to English pronoun "I" -- as Segalovich was experimenting with derivatives of words that described the essence of the technology. The full name originally stood for "Yet Another iNDEX."

Today the word "Yandex" has become synonymous with Internet search in Russian-speaking countries, as people suggest "asking Yandex" for answers to their inquiries.

Private equity investors are also keeping stakes, including Baring Vostok Capital Partners, which bought into Yandex in 2000, when it had revenue of just $72,000 and lost $2 million.

The funds' original investment valued Yandex at $15 million, meaning Baring Vostok and its partners could make up to 93 times their original investment.

Investors who buy into Yandex IPO will receive Class A shares, which only have one-tenth of the voting power of the Class B shares that insiders in the deal will retain.

Also, a golden share held by Sberbank, the state-controlled Russian bank, represents a poison pill that could be used to prevent any single investor from acquiring a voting stake in Yandex of more than 25 percent.

Morgan Stanley, Deutsche Bank and Goldman Sachs are leading underwriters for the offering.

Shares are expected to begin trading on the Nasdaq on Tuesday under the symbol "YNDX."

(Additional reporting by Maria Kiselyova, Melissa Akin and John Bowker in Moscow, Megan Davies in New York; Editing by Alexander Smith, Steve Orlofsky and Bernard Orr)