Shares of newly public Russian Internet search company Yandex NV rose 50 percent on Tuesday, evidence of the same ardent investor interest that doubled LinkedIn Corp's share price after its initial public offering last week.
While demand for Yandex is strong, a source said that investors bid to buy 17 times as many shares as Yandex and its owners made available, the concern is that IPO valuations for Internet companies are far higher than their earnings prospects.
Beyond that, it could prompt a rush of less able companies seeking to tap the same kind of investor demand that fueled the dot-com boom of the late 1990s.
Shares of Yandex, the biggest Internet IPO in the United States since Google Inc nearly seven years ago, were at $37.47 in late-afternoon trading on the Nasdaq.
The IPO comes a week after professional social networking company LinkedIn went public. Investors more than doubled that company's stock price on its first day of trade.
It also comes as Wall Street speculates about when social networks Facebook and Twitter will go public. Yandex's IPO provided more evidence that Internet companies are hot again, maybe more than they should be.
Yandex has good growth to date, and I think they will in the future, said IPOdesktop.com president Francis Gaskins. Investors are hungry for growth wherever they can get it, whether it is Russia or elsewhere.
Yandex raised $1.3 billion in its IPO, selling 52.2 million shares for $25 each. It valued the company at about $8 billion. Morgan Stanley, Deutsche Bank Securities and Goldman Sachs & Co led the underwriters on the offering.
Yandex has not decided how to use the money it made in the IPO, but it is important to have large cash balances, just like the company's rivals, said co-founder and Chief Technology Officer Ilya Segalovich, 46.
All our competitors have piles of cash -- huge piles -- and we must be prepared for (all) kinds of things, said Segalovich.
Yandex's business model is driven by online advertising. In 2010, profit rose 90 percent to 3.8 billion rubles ($134 million) on sales that grew by 43 percent to 12.5 billion rubles ($441.3 million).
Analysts say that the search engine devised by Segalovich and co-founder Arkady Volozh, 47, has a competitive advantage over Google because it is better equipped to handle the grammatical complexities of the Russian language.
For the company to grow, it must defend its market share in Russian search, now at 65 percent against Google's 22 percent.
Google is a great company, but we are better, Segalovich said.
Segalovich and Volozh, who met as schoolchildren, said the IPO would help put Russia on the map as the birthplace of a global technology company.
We're working toward that happening, Volozh said in an interview.
Russia is famous for its resources, he said. But Russia also has a lot of talent... So far, there aren't many technology companies ... that would work for the entire world. We believe that the scientific culture of Russia is so strong that sooner or later such a company will appear.
Segalovich said he and Volozh would celebrate the IPO by flying back to Russia from New York after a punishing two-and-a-half weeks of investor meetings.
(We've been) meeting investors... to explain what Yandex (is)... is it real or not, is it fake?, said Segalovich. No, it's not fake, it's real people... You can touch them.
(Additional reporting by Alina Selyukh; Editing by Robert MacMillan and Derek Caney)