Yandex NV (YNDX:US) tumbled the most this year on speculation the owner of Russia’s most popular Internet search engine will report net income faltered last quarter as competitors such as Google Inc. (GOOG:US) encroached on its market share.
Yandex, which reports first-quarter earnings tomorrow, slumped the most since Dec. 12 in New York, pushing its valuation to 26.1 times estimated earnings, the cheapest level since March 12. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. was little changed yesterday at 101.75, the lowest since Jan. 24, while futures expiring in June on Russia’s dollar-denominated RTS Index were steady at 152,840 in U.S. trading.
Nasdaq-listed Yandex’s share of Russian online searches averaged 59.4 percent in the first quarter, down from 60.8 percent in the last three months of 2011, while the share of Google, owner of the world’s largest search engine, rose to an average 25.7 percent from 25.5 percent, data compiled by Liveinternet.ru show. Yandex will report a 35 percent drop in first-quarter net income from the fourth, according to analysts surveyed (YNDX:US) by Bloomberg.
“Competition is increasing and Yandex has to figure out how to maintain its market share so that it doesn’t cost it a significant decline in profits,” Iouli Matevossov, a senior analyst in Moscow at Alfa Bank, which has rated Yandex equal- weight since August, said by phone yesterday. “Their first quarter results will clearly be worse than the fourth, which is the strongest quarter in a year traditionally, and the market is already reacting to that.”
Yandex sank 5 percent to $24.54 in New York yesterday, the lowest level in a month. Trading volumes rose to 1.73 million, 7.4 percent higher than the three-month average, data compiled by Bloomberg show.
The Hague, Netherlands-based company will say that net income in the three months to March 31 was 1.4 billion rubles ($49 million), down from 2.2 billion rubles in the fourth quarter of 2011, according to the average of four analysts’ estimates compiled by Bloomberg.
Baidu Inc. (BIDU:US), owner of China’s dominant Internet search engine, accounted for 78.5 percent of China’s search market by revenue last quarter, compared with 16.6 percent for Google, according to research company Analysys International.
“The main risk for Yandex is competition,” Anna Lepetukhina, an analyst at Troika Dialog who cut Yandex shares to hold from buy on April 20, said by phone from Moscow yesterday. “They may increase spending, may face a need for more investments, particularly in labor costs, as they need more and better services.”
Yandex’s competition with Google is limiting the company’s ability to boost profits, Lepetukhina wrote in last week’s report.
Mail.ru Group Ltd. (MAIL), the largest Russian-language Internet company, also reports its first quarter financial results tomorrow.
Global depositary receipts of Mail.ru -- which holds stakes in Internet companies Facebook Inc. (FB:US), Groupon Inc. and Zynga Inc. -- fell 1.1 percent to $40.54 in London, the lowest level since April 12. The GDRs are up 56 percent in 2012, the best start to a year since the stock debuted in November 2010.
Moscow-based Mail.ru -- which sells games and online advertising, runs an e-mail platform in Russia and owns a stake in a social network website -- has also been expanding its search market share. Mail.ru’s share rose to an average of 9.1 percent in the first quarter from 7.3 percent in the previous quarter, according to Internet data researcher Liveinternet.ru.
Facebook Profit Drop
Yandex also fell as Alexey Mazurov, head of the company’s development department, filed to sell 280,000 common shares for an estimated $7.2 million, according to an April 17 filing released by Yandex on April 23. Mazurov has raised more than $3 million from selling 120,000 Yandex shares since March 20, the filing shows.
Facebook, the world’s biggest social network which is planning an initial public offering, said yesterday that first- quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled. The company said in a statement that growing costs “could harm” business and profitability.
The Market Vectors Russia ETF (RSX:US), a U.S.-traded fund that holds Russian shares, declined 0.2 percent to $29.56 yesterday, the lowest level since April 10. The RTS Volatility Index, which measures expected swings in the index futures, rose 0.2 percent to 32.45 points in U.S. trading.
Russia’s Federal Financial Markets Service recommended that the country’s Micex-RTS Exchange make staffing changes after a technical failure on April 23 caused trading to be halted for more than four hours.
The watchdog will have the legal authority to fire or impose penalties on the managers of the exchange from Jan. 1, 2013, according to a statement e-mailed yesterday. It was the third trading halt in the past 12 months and the second since the Micex and RTS indexes merged into one exchange in December, Nikita Bekasov, spokesman for the Micex-RTS, said on April 23.
American depositary receipts of OAO Mechel (MTL:US), Russia’s largest maker of steelmaking coal, climbed in U.S. trading, widening their premium over the company’s shares listed in Moscow to 2.2 percent, the most in more than three weeks.
Mechel (MTLR) added 2.5 percent to $8.66 in New York yesterday, after dropping 0.2 percent to 248.70 rubles, or $8.47, the lowest closing price since July 15, 2009. One ADR is equal to one ordinary Mechel share. The coalmaker advanced as data showing sales of new U.S. homes rose more than economists expected in March, bolstering the outlook for global commodities.
Crude oil for June delivery gained 0.4 percent to $103.55 a barrel on the New York Mercantile Exchange yesterday, while Brent oil declined 0.5 percent to $118.16 on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, dropped 0.4 percent to $115.28 a barrel.
United Co. Rusal, the world’s largest aluminum producer, gained 0.6 percent to HK$5.46 in Hong Kong trading as of 11:42 a.m. local time. The MSCI Asia Pacific Index gained 0.3 percent.
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