Friday, February 21, 2014

This Web Search Company is Quickly, Quietly Becoming a Mohctp (YNDX, BIDU, GOOG)

Ever wish you could go back in time about ten years and invest in Google Inc. (NASDAQ:GOOG)? If you could, your GOOG stock position would be up about 1000% right now... a handsome reward indeed. Trouble is, you can't invest in the Google of the past. To capitalize on currently-available search-based investments, you have to find a company that's in a situation now like the one GOOG was in a decade ago.

This is where many savvy investors would expect to hear the name Baidu Inc. (NASDAQ:BIDU)... China's web-search giant, which owns about 63% of that nation's search market in addition to a good-sized piece of its growing mobile search market. BIDU isn't the stock you're going to hear touted as the next Google today, however. No, the next Google - or as close to it - as you're going to get anyway - worth some speculative investment dollars is a company called Yandex NV (NASDAQ:YNDX).

Don't sweat it if you haven't heard of YNDX; most people haven't. That's because this particular web search giant is growing its roots in Russia.... an internet-using market that's far more developed than many outsiders might believe. More than 70 million Russian Federation citizens access the web every month, doing everything from work-related stuff to the same time-killing socializing and movie-watching that most Americans do on the internet. That's (for better or worse) when the revenue really starts to roll. And, Yandex acts as the intermediary for 60% of the nation's internet searches.

The million dollar question is, can Yandex NV hold onto that commanding market share? One only has to look at Baidu to see how easily is can be to lose ground. Rival Qihoo didn't exist at all (as a search engine anyway) in early 2012, and in less than two years garnered about 20% of China's web search market.... some of it away from Couldn't another search engine do the same in Russia (like Google, which is operating there) to swipe business from Yandex NV? Theoretically, yes. In all likelihood, no.

It's not the kind of thing that most web-users see, so it's not the kind of thing that most investors think about when judging the strength of a search engine company. But, Russians don't use the same alphabet - not even the same alphabetic characters - that most Western cultures do. The United States and most of Europe use a Roman alphabet, while the Russian Federation and most of eastern Europe use a Cyrrilic alphabet... Russia, Turkey, Ukraine, Kazakhstan, and Belarus are the key Cyrillic countries.

It wouldn't seem like a difference that, say Google couldn't overcome - characters are characters on a keyboard. It's a nuance that's significant enough, however, that the Google algorithms don't work all that well for Russian web users. That's why Google only owns about 26% of the Russian search market (well, that and the fact that the government there keeps a tight grasp on who does what on the web in Russia).

The disparity between Yandex NV and Google could even widen now that smartphones are becoming prolific in Russia. A couple of days ago it was announced that Yandex was going to become the go-to OS on a couple of popular Android smartphones there [the risk of an open source program] that will make using the Yandex search tool much more likely.

Bottom line? Although the language barrier that prevents Google from making headway in Russia also prevents Yandex from making headway in non-Cyrillic markets, that's a trade-off the company can live with. It means any real competition to the company's search dominance would most likely come from within Russia or from eastern Europe, and there's just not any other company in a financial or political position to mount a serious attack on Yandex NV. That's the kind of monopoly-like dominance worth a shot. The fact that Russia's web market is just now hitting a mature stage means the next few years could be high-growth ones, kind of like Google being in the right place at the right time in the U.S. when broadband become the norm beginning in the early 2000's.

By the way, 'mohctp' is Russian for 'monster'.

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