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The shares of Russia's two largest internet stocks have again fallen beyond their IPO prices, indicating that Russia's slowing economy and disturbing political trends are impacting even on its most dynamic sector. 

The share price of Russia's largest internet company, search engine Yandex, on the Nasdaq has fallen to $24.48 on October 17, below the price of its landmark IPO in May 2011, the first such IPO of a Russian internet company, when the company's shares were floated at a price of $25 per share. 

The global depositary receipts (GDR) of Mail.ru, Russia's largest social network company, listed on the London stock exchange were trading at GBP24.12 on October 17, less than their IPO price in November 2010 when they were placed at GBP27.70.

Russia's internet stocks have plummeted faster than the market, as investors fled the hopeful part of the Russian economy faster than they drop its core oil and gas stocks, as anti-Westernism and authoritarianism in Russia grow. The capitalisation of Yandex has now collapsed by 43% since the start of the year, and of mail.ru group by 41%, twice as much as the drop in the index of the wider RTS Index. Other major Russian tech stocks have also collapsed far ahead of the market, including telecommunication stocks: Vimpelcom is down 55% since the start of the year, MTS down 39%, Qiwi down 51% and STS Media down 64%.

Besides political developments, investors have been scared off by new regulatory measures applied to the internet, obliging Russian firms to retain user data for six months, restricting internet payments and equating bloggers with media, for example.

The first time that Yandex and mail.ru stock fell below IPO price was in April following statements by Russian President Vladimir Putin complaining about 'Western influence' in Yandex. The stock price then recovered before again in October dipping below the IPO price in connection with slowing growth in the domestic economy. 

Both companies' earnings show that they are developing not that badly, according to Uralsib analyst Konstantin Belov. Almost all Yandex earnings come from advertising sales, mostly context advertising. In the second quarter, Yandex's context ad sales increased by 39% and banner ads dropped by 6%, while the company retained its earnings forecast of 25-30% growth for 2014, according to Uralsib. Mail.ru makes money on both banner advertising, context advertising and receives payments from users. The company cut its earning growth forecast for 2014 from 22-24% to 14-18% following its second-quarter results. 

Experts expect the rate of internet advertising growth to slow, but to stay relatively high. They see the drop in share price of Yandex and Mail.ru ahead of the market as also reflecting the drop in the value of the ruble – both companies earn the bulk of their revenue in the domestic currency.

Russia's advertising market is already feeling the squeeze from falling growth rates. The Russia communication agencies association's (AKAR) forecast for 2014 is for growth of only 1.2% compared with 10.1% growth in 2013. In the first half of the year, the internet ad market grew by 20% to RUB28bn, AKAR said.