Yandex Raises $1.3 Billion in U.S. IPO

Yandex Raises $1.3 Billion in U.S. IPO

Published: May 25, 2011 (Issue # 1657)

MOSCOW — The country’s most popular search engine Yandex raised $1.3 billion in a U.S. initial public offering Tuesday, pricing its shares above the sale’s marketed range.

Success on Wall Street is a key indicator of foreign investors’ infatuation with Russia’s tech sector against the backdrop of several canceled IPOs for non-technology companies in recent months.

Yandex, which generates 64 percent of all search traffic in Russia and is currently the largest Russian Internet company by revenue, sold 52.5 million shares, or a 16.2 percent stake, at $25 each, valuing the company at about $8 billion, Yandex said Tuesday in an emailed statement.

The share price was above the original $20 to $22 range estimated. Yandex will list its shares on the Nasdaq Stock Market under the symbol YNDX.

The order book was closed Friday, earlier than expected, due to a surge of interest.

Yandex intends to use the net proceeds from the IPO — which the company estimated at up to $336.4 million — for investments in technology infrastructure, particularly new servers and data centers.

“We may also use a portion of the net proceeds for the acquisition of, or investments in, technologies, teams or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or make any such investments,” the company’s profile on NASDAQ says.

The co-owners — which include U.S. investment fund Tiger Global, Baring Vostok, Roth Advisors, the World Bank’s IFC and company founders Arkady Volozh and Ilya Segalovich — were expected to earn $883 million to $919.4 million from the sale, Interfax reported.

The listing comes just over six months after an IPO of Russia’s Mail.Ru Group on the London Stock Exchange, which raised $912 million, and another one less than a week ago by California-based social media company LinkedIn, which raised $352.8 million.

Expectations from the Yandex IPO were high, buoyed by the success of the Mail.Ru IPO in November and the ongoing Kremlin rhetoric about weaning the economy off its dependence on natural resources.

Russia’s Internet economy — Europe’s second-largest Internet market after Germany — will potentially account for up to 3.7 percent of its gross domestic product by 2015, a recent report by the Boston Consulting Group predicts, up from 1.6 percent of GDP in 2009 when it was valued at $19 billion.

Domestic Internet companies are seen on par with their international counterparts, and investors are ready to bet on them.

This is not the case with non-technology IPOs that have recently been canceled: Five Russian companies including Russian Helicopters, pipe maker Chelpipe and coal miner SUEK, decided not to go through with planned listings on the London Stock Exchange this year because of weak demand.

“I am not sure I will be able to say why [Russian] companies outside the Internet sector fail expectations. … But as far as the Internet companies go, here the success is predictable because the Internet is developing really quickly and has far from exhausted its growth opportunities,” Vladimir Dolgov, head of Google Russia, told The St. Petersburg Times.

Troika Dialog analyst Anna Lepetukhina said the interest in Internet companies was reignited about half a year ago with the IPO of Mail.Ru and the beginning of Chinese IPO euphoria, especially that of Qihoo 360 Technology Co., China’s third-most-popular Internet company.

This enthusiasm makes some investors worry that a second Internet bubble may be on its way, while others see significant differences between the current wave and past disappointments.

“We believe that there are no reasons to be afraid of another bubble because today Internet companies go for an IPO with coherent business models, and not [just] potential audiences that one day could be turned into money,” Dolgov said.

Yandex is also showing good fundamental results. Yandex posted a net profit of $134 million in 2010 and $28.8 million in the first quarter of 2011, on revenue of $439.7 million and $137 million respectively.

After the trading of the new stock begins, all eyes will be on the competition between Mail.Ru Group and Yandex shares.

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