Yandex NV (NASDAQ:YNDX) has announced that smartphone manufacturers Huawei Technology Co Ltd (SHE:002502) and ZAO Explay will start pre-installing its app suite, including a browser, maps, cloud storage, and its own Android app marketplace, instead of the Google Inc (NASDAQ:GOOG) equivalents on smartphones sold in Russia.
Deals have limited short-term impact
While Google Inc (NASDAQ:GOOG) is the undisputed global search leader, it faces fierce local competition in some markets, and Yandex NV (NASDAQ:YNDX) is its main rival in Russia. It already has 52% of online searches from Android phones in Russia, 90% of searches from Windows Phones, and 40% of searches from Safari (Yandex also claims a majority of non-mobile Russian web searches). Of the 17.6 million smartphones sold in Russia last year, Explay sold 4.7% and Huawei sold 1.2%, so having Yandex apps preinstalled on those phones is an incremental advantage, but still significant.
“We see the news as positive longer term, but given relatively low market share of Explay and Huawei on the Russian market and already existing pre-installments by mobile carriers we see only limited immediate implications for Yandex shares,” writes JP Morgan analyst Alexei Gogolev, who rates Yandex as Overweight, current price $37.3.
Yandex falss as Google penetrates Russian market
Ironically, Yandex NV (NASDAQ:YNDX) recently fell 7.91% precisely because of the success that Android phones were having in Russia, most of which have Google pre-installed. If people become accustomed to Google on their smartphones, the thinking is that they will change their habits everywhere they connect online. Getting its own search function pre-installed on Android phones is a good strategy, though it will need to find bigger partners than Explay and Huawei if it is going to hold the line with 60% of the Russian search market. The company has tried this strategy in other markets as well (Yandex comes pre-installed by MTS, Megafon, and Avea in Turkey) so there’s little doubt it will pursue similar deals with other carriers in Russia and other countries in the region.
The Russian internet audience has become the largest in Europe and is expected to grow by at least 15% every year until 2018, so it is particularly important for companies like Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) who already have mature user bases in the US and Western Europe. Facebook signed a deal with http://www.valuewalk.com/2014/02/yandex-slips-on-low-expectations-for-results-announcement/ last month giving the Russian search giant access to user profiles in Russia, Ukraine, Belarus, Kazakhstan and Turkey. The deal is expected to benefit both sides since Facebook will get more traffic directed its way and Yandex can offer better search results to users.