The Internet is increasingly becoming a larger part of the average Russian's daily life. Based on the prevailing user growth trend, both Internet usage and frequency should increase.
This is great news for online advertising; as Russia's largest Internet advertising company, Yandex N.V. (YNDX) is well positioned to profit from this expanding market.
Yandex is Russia's most popular site with 52 million unique visitors per month. Though every search company is an underdog compared to Google, Yandex has a distinct home field advantage in the search market. Yandex has 62% of the Russian search market while Google controls only 26%.
Yandex revised its sales forecast higher, increasing it to range of 30% to 35% for 2013, even as Russian policy makers cut GDP growth estimates. Management also announced a share repurchase program of up to 12 million shares, which is about 4.5% of the outstanding shares.
Financial results for the first quarter ended March 31, 2013 were also positive. Revenues increased 36% to $257 million.
Income from operations ballooned 57% to $79 million -- thanks to a 30.7% operating margin -- and net income soared 79% to $72.2 million. Yandex had $942 million in cash at the end of the quarter.
As you can tell, the financial results are very strong. More importantly, management believes that success will continue. The financials should also be supported by the strong tailwinds in online advertising growth and Internet usage rates in Russia.
Moreover, Yandex is expanding into other high growth countries. Turkey has a large and fast-growing online audience. Though Yandex has only 2% share of the Turkish search market, 84% of the country's Internet users recognized the Yandex brand. The number of daily Turkish users increased 10-fold to 940,000 during the past year, too.
We believe Yandex is a great investment below $31 and predict the stock will rise to $36 this year.
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