Market Insight

Yandex results confirm strong growth of Russian online ad market

February 28, 2012

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Yandex reported a 56 per cent year-on-year (yoy) increase in its Q4 2011 earnings and 60 per cent annual yoy increase, reaching RUB6.4bn (€145.5m) in Q4 and RUB20.3bn (€452.3m) for the full year. Advertising accounted for 98 per cent of total revenues both quarterly and annually, of which 68 per cent was from Yandex-owned sites at RUB4.4bn (€99.6m) for Q4 and RUB14.6bn (€329.8m) for the year. For Q4 2011, this represents growth of 57 per cent vs. Q4 of the previous year. For the full year, growth was even higher at 61 per cent yoy.

Paid-for-search (Yandex calls it 'text-based advertising') is the main source of revenue for the Russian internet company at 86 per cent of total advertising in Q4 2011 and 89 per cent in FY2011. However, similarly to its American counterparts (Google, Microsoft, Yahoo), although it only accounts for 13 per cent of total revenues, Yandex saw its display revenue grow the fastest in 2011 by over 70 per cent, both quarter-on-quarter and year-on-year.

The majority of Yandex's revenues come from the Russian market, where Yandex holds just over 60 per cent share of the search market, giving the company undisputed leadership. In addition to Russia, Yandex retains a strong presence in Kazakhstan, Ukraine, and Belarus. In Q3 2011, it also launched its services in Turkey.

In 2011, online advertising has shown significant growth even in mature markets, as advertisers shift their spending from traditional media to the digital space in an attempt to find better return on investment (ROI) and follow audience migration. For instance, in Western Europe (WE), online advertising grew 10.6 per cent year-on-year, while other media saw minimal growth, with some even experiencing significant decline. In Central Eastern Europe (CEE) where online advertising is still in its early stages, growth of online is high at an average rate of 25.9 per cent, but constitutes an average 15.8 per cent market share of total advertising, in comparison to 22.7 per cent in WE. Traditional media still occupies a stronger position in the advertising ecosystem as the market is still in the process of establishing itself.

Russia demonstrates characteristics of an emerging advertising market. It still sees high increases in traditional media advertising, typical of CEE countries, with revenue rises at 12.1 per cent for TV, 14.6 per cent for radio, 16.8 percent for out of out-of-home and 6.6 per cent for print. Furthermore, it is also demonstrating strong growth in online advertising at 48.3 per cent in 2011, which has put the medium in second place in terms of market share of total advertising revenues in Russia, for the first time. This is still far behind TV, which has a 47.7 per cent market share of the advertising market in Russia, but IHS Screen Digest predicts that by 2013, online should cross the 20 per cent benchmark.

With Russian real GDP growing at a healthy rate of 3.7 per cent in 2012 in spite of the adverse climate in Europe, ad spend will continue to rise and online ad spend will continue to outperform total advertising growth. In order to secure sustainability of this growth Yandex aims to increase scale and diversify its offering. For instance, Yandex has already signed a partnership with Twitter and Skype at the start of 2012, and is currently working on a deal with Opera, one of the largest global mobile browsers in terms of users, to also establish its dominance in the world of mobile. Furthermore, the Russian search firm is focusing its investments on improving its technology to enhance ROIs from ads as demand for ad effectiveness from large advertisers, particularly from the financial sector, will increase in 2012.

Yandex has been very successful at conquering the Russian search market and will maintain its lead in 2012. However, as the Russian market saturates, Yandex will have to look for growth opportunities elsewhere, as is already apparent with its expansion to Turkey in October of last year. This will be very challenging for the Russian company as despite its success at home, competition with Google abroad may prove to be a lot more difficult.

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