FOCUS: After solid 2018 results, Yandex sounds reserved about 2019, Mail.Ru optimistic

By Yekaterina Yezhova

MOSCOW, Mar 11 (PRIME) -- Financial performance of Russia’s Internet behemoths in October-December and the full 2018 year was in line or above consensus, analysts said, adding that heavily dependent on advertising revenue, Yandex wins by value, while Mail.Ru Group has other sources of revenue. Yandex announced a conservative guidance for 2019, while Mail.Ru sounded too optimistic.

“Yandex has reported strong financials, with revenue improving quarter-to-quarter. Solid growth in Taxi, Classifieds and Media Services, as well as decent numbers from the Search and Portal Segment drove the consolidated top line up 46% on the year (in October–December)…Higher investments weighed on the group’s EBITDA, but it nonetheless posted a 38% year-to-year increase,” investment group Aton said in a research note.

Investment company UralSib Capital liked Yandex’s results for October–December even with a lower than expected margin. “The company keeps the leading positions in the Russian Internet industry and remains the main beneficiary of continuing inflows of advertising budgets into the online segment,” UralSib said.

Yandex’s total online advertising revenue excluding Yandex.Market increased 25% on the year to 29.5 billion rubles in October–December out of the company’s total revenue of 38.8 billion rubles, up 46%. Online advertising revenue grew 22% to 101.1 billion rubles in 2018, and total revenue jumped 41% to 126.4 billion rubles.

Yandex.Market was deconsolidated in April 2018 after creation of a joint venture with Sberbank on the marketplace’s basis.

VTB Capital said, “Mail.Ru delivered on its guidance of a notable profitability improvement in October–December…coming in line with consensus and within the company’s guided range.”

Georgy Vashchenko, director of operations on the Russian stock market at investment company Freedom Finance, said Mail.Ru Group’s business grows thanks to the traditional segments, like Internet advertisements on websites and in applications, including in mobile games and social networks, and new directions, like food delivery, where revenue rose 48% in 2018. The IT giant’s business is based on online advertising, games, and social networks, while other divisions bring less than 7% of revenue, he said.

Mail.Ru Group’s online advertising revenue increased 38.4% on the year to 10.4 billion rubles in October–December, out of total revenue of 23.4 billion rubles, which increased 33.7%. Online advertising revenue grew 38.6% to 31.9 billion rubles in 2018, and total revenue ascended 32.5% to 75.3 billion rubles.

Aton said, “Overall, the group delivered solid results and demonstrated progress in its ‘transformation’ year. It should further benefit from ongoing market trends, including an advertisement budget shift towards online, mobile and social networks, as well as new initiatives that are gaining momentum.”

Yandex expects its 2019 revenue to rise 28–32%, excluding Yandex.Market. Search and Portal revenue is seen to grow 18–20%, which is “a cautious guidance” given at the beginning of the year, as VTB Capital said.

Mail.Ru Group expects its revenue to rise 18–22% to 85–88 billion rubles and sees EBITDA at 32–34 billion rubles. “This outlook includes a 3.5 billion ruble positive effect from using the IFRS 16 standard, but, even taking it into account, seems rather aggressive, in our opinion,” UralSib Capital said.

“Under the 2019 guidance, the margin will rise strongly, which could support the company’s quotes in the short term. At the same time the outlook is quite optimistic, and the risk of failing to reach it is high enough.”

Quotes in view

“Yandex is the most expensive company of the Runet by capitalization, and Mail.Ru Group is the second,” Anna Bodrova, senior analyst at broker Alpari, told PRIME.

Market capitalization of Yandex amounted to U.S. $11.7 billion on March 6 and of Mail.Ru Group to $5.5 billion.

Common shares of Yandex gained 22.4% since the beginning of the year in Moscow to 2,362 rubles on March 6 and American depositary receipts 28.9% in New York to $35.98. Mail.Ru Group’s global depositary receipts climbed 20.3% to $26.26 in London.

“Yandex has good prospects, and it will go above 2,435 rubles in the mid-term. The securities have been rising since mid-October 2018, and the trend persists. Mail.Ru Group’s receipts are traded near the upper bracket of mid-term flat of $24.80,” Bodrova said.

(65.9646 rubles – U.S. $1)

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