Yandex N.V. (YNDX) plunged 14% on Monday after Russia invaded the Ukrainian region of Crimea. The reasons are obvious: YNDX is a major Internet player in regions using Cyrillic characters across Eurasia — including Turkey, which has been full of geopolitical unrest in the last year, and Russia, which has just sparked international outrage with its invasion of its neighbor.
But when you dig deeper, the steep selloff might not make much sense at all.
For starters, Yandex is headquartered in the Netherlands — not Russia. Secondly, Yandex just took a big gut-punch a few weeks ago on disappointing earnings that priced in a slower Russian economy weighing on revenue and profits — YNDX stock slid 10% on news that its net income climbed “only” 24%.
So yes, there’s risk of political fallout and localized violence around Crimea. But given the double-digit selloff in Yandex after earnings a few weeks back and the current crash and burn, YNDX stock is off more than 25% year-to-date.
That seems a bit much … and signals a possible bargain-hunting opportunity for aggressive traders.
YNDX: The “Next Google”
But while calling YNDX stock a megacap Internet success story in the making might be a bit much, there is undoubtedly potential — and success that even GOOG should envy.
Consider that Yandex has double the market share of Google’s search in Russia, thanks to its sophisticated algorithm that was built around Cyrillic characters, whereas Google’s technology was simply reverse-engineered on Russian- and Turkish-language search.
Sure, Yandex isn’t as efficient at monetizing contextual search just yet and is wholly dependent on its search-related and display advertising. In those respects, it is way behind Google.
Click to Enlarge And if you look at this map, you’ll see that despite its popularity in Russia, it still is woefully behind Google in the global war to rule the Internet.
However, with total annual revenues of $1.2 billion, it won’t take a lot to move the needle in this Internet midcap. And with a big market share in untapped markets like Russia and Turkey, there are organic gains to be had simply by maintaining its dominance and waiting for more folks in these emerging markets to head online.
Sure, there’s risk for Yandex stock. Russian GDP growth was anemic in 2013, at a meager 1.3% annual rate, and it’s hard to imagine much of tailwind for advertisers when the economy is struggling so mightily. The self-inflicted wounds of political unrest could make things even worse.
But robust revenue growth and solid stock performance in 2013 are both worth remembering. In fact, in the past 12 months YNDX stock remains up 38% even after the recent selloff — outperforming the Nasdaq-100.
If you’re an aggressive investor who is looking for the next big thing in tech, it’s probably not the new CarPlay technology from Apple. And if you’re looking for a fair price in tech, you probably want to steer away from the froth in high-fliers like Baidu (BIDU) — also known as the “next Google,” only this time in China instead of Russia. BIDU stock is up over 80% in the last year despite the fact that its recent earnings showed less than 1% profit growth.
It’s a risky call to buy Yandex, to be sure. But unlike a diversified Russia play like the Market Vectors Russia ETF (RSX), with its fingers in several very cyclical Russian stocks, a pure play on YNDX stock could be a better attempt at bargain hunting in the region because Yandex is part of the future in Russia — regardless of how Crimea plays out. Russians are increasingly going online, and the companies that are there to facilitate this telecommunications growth will profit handsomely.
YNDX is one of them. And after the recent selloff, you could have a very good opportunity to buy this fast-growing Internet stock on a dip.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.