Yandex, Russia’s internet giant, struggles to dodge geopolitics

If you think Silicon Valley has a problem with politics, avoid thinking about Russia’s largest internet company.

Nasdaq-listed Yandex, which operates the largest Russian search engine and taxi booking service, is caught between its local customers and regulators on the one hand, and American technology and finance on the other. The latest bright spot is the potential sale of its media interests, which consist of a news aggregation service similar to Google News and a social platform called Zen.

Since the Russian invasion of Ukraine, the Kremlin has suppressed dissenting voices by criminalizing what it considers false information — such as calling what President Vladimir Putin calls a special military operation in Ukraine a war. The Yandex aggregator, which by local regulations is only allowed to display licensed content, displays news more than ever on the official line.

The messenger was exposed to fire. One of the victims is former Yandex CEO and Executive Vice President, Tigran Khodavirdian, who was recently sanctioned by the European Union for making his name in the company’s taxi division. The European Union cited the news service, as well as Mr. Khodavirdian’s attendance at the Kremlin meeting on the day of the invasion, as reasons for placing him on the sanctions list. He resigned from his roles in Yandex.

Before punishing Mr. Khodavirdian, he wrote a post on Facebook arguing that although “war is a brutal thing,” Yandex needs to keep its head under the hood and continue to offer technical solutions to the Russian people. It now appears that the company is taking a similar view by “exploring strategic options” for news aggregator and Zen. It is trying to position itself as an apolitical technology provider – a strategy hostile to the origins of the media under an authoritarian regime.

The fast-growing Zen is more valuable than assembler and has yet to receive criticism. With more pressure on the likes of Facebook to take more responsibility for the content on their platforms, Yandex seems to see a risk that its social media channel could become an issue as well.

One of the company’s biggest challenges is a brain drain if its well-educated employees see its apolitical stance as little better than complicity in Putin’s repressive rule. So far, the company has kept on the cutting edge of consumer technology by retaining smart Russian computer scientists who could easily get jobs in the United States, and some will leave; The only question is how much.

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This is by no means the company’s only problem. Imports of critical technology devices have paused while sellers wait to see how the sanctions will end. Trading in its shares has been suspended, resulting in a commitment it cannot easily meet to redeem $1.25 billion in convertible bonds. The Russian economy is under severe pressure, which will affect the company’s growth.

Yandex search business is very profitable, like Google business, which should provide some financial security while isolating it from Western capital. This contrasts with the situation at Ozon, a money-burning e-commerce company that was promoted as Russia’s Amazon.com in an initial public offering on Nasdaq less than 18 months ago. However, Yandex will need to tighten its belt: its strategy of plowing search profits into less-developed markets such as food delivery is no longer viable.

In November, the company reached a peak market value of about $31 billion. Its shares are now literally uninvestable, with a total value of less than $7 billion. These dramatic falls from grace usually come in the wake of corporate scandals, not those geopolitical scandals that corporations can do little to solve. Yandex Refuge in a measured neutrality shows how few good options it has.

write to Stephen Wilmot at stephen.wilmot@wsj.com

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It appeared in the March 28, 2022, print edition as “Internet giant Russia struggles to dodge geopolitics.”