There are two big countries in which Google Inc (NASDAQ:GOOG) does not dominate search: Russia and China. The companies that dominate these markets are Yandex NV (NASDAQ:YNDX) and Baidu.com, Inc. (ADR) (NASDAQ:BIDU), respectively. Both stocks have soared after their recent quarterly reports. Yandex has already gained 55% this year, while Baidu has gained 27%. Baidu has to deal with competition from within the country, as Google’s share of the Chinese search market stayed in the low-single digits. On the other hand, Google is the main competitor of Yandex in the Russian search market. Let’s take a closer look on this battle.
Yandex NV (NASDAQ:YNDX) has reported that its search share was 61.7%, up from 60.4% a year ago. This share was taken from Google Inc (NASDAQ:GOOG). Contextual ads brought 88% of earnings in the second quarter, up 35% year over year. Yandex is following a business model that is similar to Yahoo! Inc. (NASDAQ:YHOO)’s. The company is betting on its own products. Yandex’s own website brought 73% of total revenue in the second quarter. The ad network grew 25% in comparison with 2012.
One of the sources of market share gain for Yandex NV (NASDAQ:YNDX) was the popularity of its browser. The company has stated that browser development is extremely important, as its browser is a platform for search. The browser has yet to reach a 5% market share, but it is gaining share smoothly.
In addition, Yandex NV (NASDAQ:YNDX) released its mobile browser in June. The initial versions cover the iPad and Android phones. Versions for iPhone and for Android tablets would follow in a few months. The company has stated that it would put serious effort in the distribution once all versions are ready.
Mobile was one of the reasons why Baidu.com, Inc. (ADR) (NASDAQ:BIDU) underperformed at the beginning of this year. The company has addressed the issue, and has reported that it gained momentum in mobile. Mobile revenues were 10% of total revenues in the second quarter. Baidu has stated that its mobile search app and mobile browser were the biggest drivers of growth. All in all, the company’s revenues grew 38.6% year over year.
The browser war is the key to user success. However, Microsoft Corporation (NASDAQ:MSFT) is unable to turn Internet Explorer’s share into Bing’s progress. At the same time, Google Inc (NASDAQ:GOOG) is extremely successful in turning Chrome usage into the search dominance. Google has recently missed analysts’ estimates on its earnings report, but investors have taken the result lightly. The shift to mobile is costly, and the revenues lag. The ad prices remain under pressure, and this is likely to continue in the near term.
At the same time, the Russian and Chinese markets live their own life. The trends on those markets are not favorable for Google Inc (NASDAQ:GOOG). Google had never had any success in China, and now it has started to lose its Russian share. The company seems to be focused on its new projects like Google Glass that take Google outside of the traditional search business into the new reality.
Will the momentum continue for Yandex?
I think Yandex NV (NASDAQ:YNDX) will continue to grow its share. Google Inc (NASDAQ:GOOG) does nothing in the Russian market to offer real competition. When Yandex finishes all its browsers and starts aggressively distributing them, bigger market share will follow. There is historically no browser loyalty on the Russian market, and people easily switch between different products.
The recent deal with Mail.ru enlarges the possibilities to extract profit from contextual advertising. The deal allows the ads from Yandex to be displayed on Mail.ru search results. On the first of July, Mail.ru has started using its own search engine, dropping Google Inc (NASDAQ:GOOG). Mail.ru’s share on the Russian market is 8.7%. This is another negative development for Google in Russia.