East Meets West: Russian Mega-Portal Explores Options In US

The chief executive of one of Russia's largest online portals was in San Francisco and Silicon Valley this week talking to fund managers - and potential strategic partners - though insisting "it's not a road show."

Yandex LLC was in town deciding whether to go public, strike a strategic partnership with a Western Internet company or simply stay its course. The firm met with a variety of fund managers to hear about what markets they prefer, what markets they cover and so forth, said Arkady Volozh, founder and CEO of Yandex.

Launched in 1997, Yandex has grown from a simple search engine to a robust portal that offers Russia's approximately 25 million Internet users e-mail, Wi-Fi access to the Internet in some 200 Russian restaurants, a unique news-aggregation service, an online buying advisor and an online payment system.

Yandex's meetings with San Francisco fund managers were arranged by investment bankers who are interested in taking Yandex public, according to Volozh. The Moscow-based company also met with several potential strategic partners including "leading search firms" in Silicon Valley. By year-end, Volzo expects the company to have made its decision.

Back home, Yandex has roughly two-thirds of Russia's search market, according to local estimates. Yandex claims 19 million unique visitors and one billion page views each month. Some 80% of its revenue -- which exceeded $20 million in the first nine months this year, according to chief financial officer Nikolai Grigoriev -- comes from search-based advertising. The rest comes primarily from banner advertising. Yandex was profitable in 2002 and began paying dividends to its shareholders the following year.

In 2000, ru-Net Holdings, an investment consortium based in Moscow, invested $5 million in Yandex. Ru-Net sold a mere 5% of that stake to Tiger Technology Private Investment Partners of New York for the same price in a deal negotiated in December 2004 but transacted this year, Volozh said. In that deal, Tiger bought a total of 10% of Yandex from Ru-Net and the firm's other owners, Volozh added. Now, aside from Tiger's 10%, the firm's original founders own 50% of the firm, management owns 10% and Ru-Net still owns 25%.

The Russian company's visit to Silicon Valley comes at a time of heightened interest in Russian technology companies -- which rarely go public. Among the exceptions are two media and technology companies, Rambler Media Ltd. and RBC Information Systems. Rambler, Yandex's closest competitor in Russia, went public on the AIM market of the London Stock Exchange in June this year. RBC Information Systems went public on two domestic markets -- RTS and Micex - in 2002.

While most U.S. interest in non-domestic Internet companies today centers on Chinese firms, "It appears that the market is starting to look beyond China as you see companies like Rambler get listed," said an equity research analyst who covers Internet companies but asked not to be named.

Yandex is "profitable and growing, in a market that's growing," the analyst said. "The perception is that Yandex is one of the market leaders. It looks like they have a pretty good strength and presence."