Arkady Volozh, the tech entrepreneur behind Yandex—the Russian equivalent to search engines like Google and Yahoo—has seen the value of his stake in Russia’s top tech giant fall by over 60% since last Thursday, the day Putin attacked Ukraine. Volozh himself lost more than $400 million that day, as Russia’s wider business community reeled from Putin’s war and the subsequent sanctions imposed thereafter. Volozh, whose net worth hit a high of $2.6 billion, is now worth $580 million.
Russia’s tech stocks, a small cluster of online businesses not targeted by sanctions, have been particularly vulnerable to the wider uncertainty throughout the country and have paid a big price for the geopolitical chaos. On Monday, the New York Stock Exchange and Nasdaq halted trading in Yandex and other tech outfits including video games maker Nexters (down 20% in February), online recruitment company HeadHunter Group (down 68% in February), e-commerce platform Ozon Holdings (down 46% in February) and payment startup Qiwi (down 25% in February).
A coder and tech entrepreneur in the Silicon Valley tradition, Volozh cofounded several IT outfits before starting Yandex in 1997. Listed on NASDAQ but headquartered in Moscow, Yandex (which means “Yet another index”) was Russia’s largest technology business with a market cap of over $30 billion at its highest point in November last year. Its market cap Wednesday is just $6.7 billion.
For years, Yandex meant more to Russia than its dollar value. Popular with global investors and Russian users alike, Yandex gained a 60% share in Russia’s search engine market–a signal that its tech entrepreneurs could, at least sometimes, compete against its U.S. rivals. It also had a rapidly growing Uber-like ride-hailing business.
Sebastian Patulea, vice president of equity research at Jefferies in London, confirms that there is nothing in Yandex’s financials to warrant the sell-off and that last week’s rapid decline, not surprisingly, comes on the back of new “geopolitical risk” and the larger “indirect effects” of punitive sanctions against Russia. Still, the future is quite uncertain. “[T]he fundamental value of the company will change as its growth rates, cost of capital and FX rate (as the company reports in RUB but trades in USD) will all worsen,” he added, “In a flywheel affect–the sentiment factor,” the general burden of bad news in Russia, “might increase the downside risk further.”
For Ildar Davletshin, senior research analyst from Wood & Co, there are four major issues for Yandex: The impact of Russia’s collapsing local economy on the core digital advertising business and ride-hailing; restrictions on the supply of high-tech equipment, including chips; the falling value of the ruble and a likely shortage of capital to fund its growth projects like self-driving cars and cloud technology. “The company will not have enough capital to fund (these ventures), if the geopolitical situation does not change,” he says. Also, while Yandex itself might be free from sanctions, its shareholders include sanctioned entities like Russian bank VTB, says Davletshin.
Then there are concerns about the Kremlin’s influence on Yandex. In 2019, Yandex agreed to a restructuring that gave a “golden share” to a newly formed Public Interest Foundation built to “defend the country’s interests,” the Guardian reported. In September last year, Yandex was embroiled in a dispute with the government during the lead up to the State Duma elections. The Russian federation put Yandex in an uncomfortable headlock when it successfully argued that it was the “owner of the exclusive rights” to the search term ‘Smart Voting.’ The term was part of an effort by the Russian opposition that formed around the once-poisoned and now jailed Alexei Navalny to challenge the inevitable election result in favour of President Putin’s incumbent party.
Back in September prominent Putin critic and former hedge fund financier Bill Browder predicted that entrepreneurs in Russia would soon face an “ugly Faustian bargain,” telling Forbes that tech firms like Yandex would need to balance “doing business” alongside doing “the bidding of [a] dictator.” He added: “It’s just not as rosy as it is in Silicon Valley.”
Billionaires Fall Off
Volozh is not the only billionaire to fall off the Forbes list in the days since Russia invaded Ukraine. According to Forbes’ real-time billionaire tracker, at least 10 Russian billionaires have now fallen beneath the $1 billion thresholds in just a few days’ trading.
Most notable amongst them, Oleg Tinkov has seen shares in digital bank Tinkoff (listed on the London Stock Exchange) lose more than 90% since the start of Russia’s assault on Ukraine. Tinkov’s fortune has shrunk by $5 billion in less than a month, and on Tuesday he officially joined Volozh in losing his billionaire status.
Source: Forbes
