Yandex is Russia’s leading search engine, commanding nearly 65 percent of the local search market compared to Google’s (s goog) 22 percent. This sort of success has it valued at around $9 billion and, it hopes, means its planned launch on the Nasdaq will raise in excess of $1 billion for investors.
In the run-up to the stock flotation, however, Yandex has hit more than a few bumps. In fact, it has pulled a series of skeletons out from the company’s closet — including concerns about the threat of political interference and revelations that the state has forced Yandex to hand over some users’ personal data.
The skeleton-filled closet first opened last week in a filing with the U.S. Securities and Exchange Commission, in which Yandex outlined the challenges that face it at home. Although the company dominates the Russian Internet search scene, with 65 percent of the market compared to Google’s 21 percent, it’s success is not necessarily that simple. The company suggested that investors should be aware of certain eccentricities that may affect a Russian business — such as corruption.
“The legal system in Russia and other countries in which we operate can create an uncertain environment for investment and business activity,” it said, noting in a series of gaps in the regulatory structure, the selective enforcement of laws, the Russian courts’ limited guidance and experience in relevant commercial law.
More damning, however, are the company’s comments that skirt around issues of corruption and political meddling. Russia suffers from “a perceived lack of judicial and prosecutorial independence from political, social and commercial forces,” it says, which also combine with “a high degree of discretion on the part of the judiciary and governmental authorities.” The result is that the market is often uneven and confusing — factors which can contribute to instability for businesses, especially big ones.
High-profile businesses in Russia, such as ours, can be particularly vulnerable to politically motivated actions. Some Russian television broadcasters, for example, have experienced what some would characterize as politically motivated actions, including efforts to effect changes of control. Although we believed that our content neutrality lessens the risk of politically motivated actions against us, we cannot guarantee that we will not be affected by politically motivated actions that could materially adversely affect our operations.
Moreover, although our Yandex News service aggregates content by algorithm, without regard to viewpoint, other parties may perceive our Yandex News service as reflecting a political viewpoint or agenda, which could subject us to politically motivated actions.
Some experts have tried to explain away the comments as simply par for the course for any business preparing to go public. After all, you have to make sure you list all possible risks to investors, right? “Even aliens could be put on the risks list,” analyst Konstantin Chernyshoyov from UralSib told The Moscow Times.
Except in Yandex’s case, this is not just theoretical or the stuff of way-out conspiracy theories. In the wake of this blunt — and honest — statement of affairs, the company has also confirmed that it handed over confidential personal data on some users to Russia’s state security service, the FSB.
As the BBC reports, Yandex shared information about a number of users who donated money (through the Yandex Wallet service) to an anti-corruption campaigner, Alexey Navalny. The 34-year-old blogger and activist is a thorn in the side of many senior figures in Moscow, with a track record of organizing petitions and protests — so much so that he was dubbed “Russia’s Erin Brokovich” by Time magazine.
Investigative newspaper Novaya Gazeta, famous for being the employer of the journalist Anna Politkovskaya, who was assassinated in 2006, says that more than three dozen contributors have been contacted by the FSB since the data was handed over, though the results of that contact is not clear.
Yandex has other reasons to worry about political interference, too — not least because one of its major shareholders is, in fact, the Russian government. In 2009 Sberbank, which is owned by the state, bought a so-called “golden share” in Yandex, which means it has the power to stop any other shareholder purchasing more than 25 percent of the company. Effectively this gives the Russian government a stranglehold on ownership of one of its biggest Internet companies. How many other Nasdaq-listed businesses can say the same?
The banks running Yandex’s IPO are supposed to have met in Moscow yesterday to discuss how it proceeds — and whatever the eventual outcome, I doubt we’ve heard the last of this.