SHARES of Yandex, an internet search engine barely known outside Russia, rose more than 55 per cent on Tuesday, in the latest multibillion-dollar technology offering.
The debut of Yandex on the Nasdaq market defied expectations, coming on the heels of LinkedIn, the professional networking site whose shares more than doubled on their first day of trading.
The Russian company raised $US1.3 billion ($1.24 billion), the largest internet offering in the US since Google went public in 2004. The stock closed at $US38.84 on Tuesday, up from $US25 at its float.
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''Yandex serves as yet another data point that we are at the start of a growth cycle for IPOs,'' said Paul Bard, the director of research at Renaissance Capital. ''Investors have been starved for innovative, rapidly-growing enterprises in new industries.''
But the strong demand for technology offerings is fanning concerns about market froth. In recent weeks, a number of companies have enjoyed robust first-day debuts, drawing unfavourable comparisons to the dotcom boom of the 1990s.
Renren, the Facebook of China, jumped 29 per cent after its float earlier this month. LinkedIn, which had traded in secondary markets at an implied valuation of $US2.5 billion, is now worth more than $US8 billion.
As befitting a technology startup, Yandex had scrappy beginnings. A Russian mathematician, Arkady Volozh, and geophysicist, Ilya Segalovich, founded the company in 1997, using an algorithm they invented to scan the Cyrillic script of the Russian Bible and literature.
The Yandex offering underscores the appeal of companies with a strong claim to a rapidly-expanding sector - internet advertising - in emerging economies that are projected to grow more swiftly than those of the US and Europe.
The Russian internet market is the second-largest in Europe, after Germany's, according to a report by the Boston Consulting Group. The report estimated online commerce in the country will increase to 3.7 per cent of the gross domestic product by 2015 from 1.9 per cent in 2009, as broadband makes its way into the Russian provinces.
Yandex, which caters to the world's roughly 270 million Russian speakers, generates more searches in Russia than Google. It is also profitable, earning a net income of $US134.3 million on revenue of $US439.7 million last year.
''This is the Google of Russia,'' said Scott Sweet, a senior managing partner at IPO Boutique. ''They are profitable, their growth is outstanding and they have over 60 per cent market share.''
Still, the company faces significant political risk, as Yandex indicated in a regulatory filing. While the Russian president, Dmitry Medvedev, has often expressed a desire to expand online commerce as an outlet for the country's rich scientific legacy, tight government control of political news could intensify as internet use expands.
Just last month, a deputy director of the Federal Security Services, the successor agency to the KGB, said authorities were studying whether to ban sites such as Skype or Google's Gmail that use encryption inaccessible to Russian law enforcement agencies.
Yandex's founders originally planned an offering in 2008 but delayed it after the onset of the global recession.
During that time, they negotiated the sale of a symbolic stake to a Russian state-controlled bank, Sberbank, in an indication of the political risks of rising internet use in Russia. Other co-owners of Yandex today include Tiger Global, a US investment firm; Baring Vostok, a Russian-focused fund; and the World Bank's International Finance Corp.
''This is a demarcation point,'' for Russian internet businesses, said Peter Loukianoff, a co-founder of Almaz Capital Partners, a venture capital firm and an early investor in Yandex. The listing, he said, signalled a new phase of ''intellectual wealth creation in Russia'', a country where most billionaires made their money on the privatisation of oil fields and mines.
Yandex follows the $US912 million offering last year of Mail.ru, a Russian internet conglomerate that owns a minority stake in Facebook.
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