Stephen Foley: Yandex, the well-oiled search engine


Outlook There didn't seem much interest from short-sellers in laying bets against LinkedIn shares yesterday, despite it being the first day after the social network's flotation last week that shorting was allowed. Too little stock is available to borrow and, with all the signs pointing to a second dot.com bubble, placing large wagers on the shares falling is probably a mug's game.

Better to ride the wave rather than try to hold back the tide, investors seem to have decided. It is no surprise, then, that interest in the flotation of Yandex, Russia's leading search engine, should have spiked after the LinkedIn debut. There were 17 times more orders for Yandex stock than there were shares available, so bankers did what they had to and increased the price. Even at $25, the stock still popped yesterday above $35.

That means Yandex is valued at 25 times 2010 sales, compared with just six times for Google shares.

A deep dig into the Yandex prospectus reveals that its own bankers valued the shares at less than $9 apiece last November. The justification for recommending them at three times that price stems from an optimistic new research report, commissioned by the company itself, which suggests explosive growth in the numbers of Russians getting connected to the internet between now and 2015. Oh, and the spike in oil prices. This, so the pitch goes, will mean more export revenue flowing into Russia, boosting the economy and therefore spending on online advertising.

We'll see. It may be as well to watch just as closely for the things that can go wrong. Chief among these risk factors is the pending presidential election next year, which even Yandex warns "creates a degree of political and commercial uncertainty, which may adversely affect our ability to implement our business plan".

Google is branching out into new ventures with its operating systems for mobile phones and PCs, and building a powerful display-ads business, too, all reasons why it should be considered to have the more valuable prospects of the pair. The pricing of Yandex is all wrong, and I blame LinkedIn. But this isn't the first time we have been scratching our heads during this tech boomlet – and it won't be the last.

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