FOCUS: Conglomerate Mail.ru to perform well in 2020, may get local listing in H2

By Yekaterina Yezhova

MOSCOW, May 6 (PRIME) -- With its robust January–March financials, Russian tech giant Mail.ru Group seems to be prepared for the challenges of the coronavirus pandemic thanks to diversification, mainly online games, and may enter the local stock market by 2021.

“In the current bad economic crisis, revenue becomes the key financial indicator. Mail.ru Group’s revenue grew by 14.3% on the year in the first quarter, which is quite strong,” investment company Algo Capital senior risk manager Vitaly Manzhos told PRIME.

 “A 22.2% fall of the aggregate net profit should not be seen as a clearly depressive factor for the actively evolving IT holding, which is turning into an ecosystem,” he said.

Mail.ru Group’s total aggregate segment revenue advanced by 14.3% on the year to 22.332 billion rubles in January–March, according to the company’s quarterly report.

Online advertising and massively multiplayer online (MMO) games accounted for 70% of the indicator. Online advertising revenue increased 9.3% to 8.553 billion rubles, and MMO games revenue grew 11.5% to 7.173 billion rubles.

The group aggregate net profit plunged by 22.2% to 2.203 billion rubles. The net debt stood at 11.422 billion rubles as of March 31.

Mail.ru Group also revoked its 2020 outlook of an 18–20% rise of revenue to 103–105 billion rubles under the basic scenario in view of high uncertainty, a logical move, Manzhos said, since the macroeconomic climate has changed dramatically by early April.

Investment company Veles Capital analyst Artyom Mikhailin said Mail.ru Group has seen pressure on advertising budgets since March and expects it to strengthen in April–June that will translate into a fall of the group’s advertising revenue, which could contract by 10–15% on the year in April. In the stress scenarios, the company expects the online advertising market to decrease in April–June and resume growth only in 2021.

“The company expects redistribution of budgets in favor of online advertising and social networks to continue. The games business should partially offset shrinking advertising budgets. Activity of the games audience started rising in late March and will soar in April–June,” Mikhailin said in a research note.

Mail.ru Group keeps the schedule of games releases unchanged and expects a pronounced increase of the sector’s revenue, the analyst said.

“We think the key uncertainty of the company’s business hinges on advertising. It’s hard to predict the length and depth of the advertising market’s sagging…However, we’re optimistic about the company’s business and believe its well-established diversification and general trends of switching of the economy into online will enable it to weather the crisis without extended  losses and win in the long-term,” Mikhailin said.

Manzhos at Algo Capital said the trend toward social distancing and massive turning to online work allows Mail.ru Group not only to resist the economic turbulence, but advance significantly. “But it does not eliminate the need to compete for a market share, and rivalry with Yandex and Google will toughen,” he said.

Mail.ru Group maintained its intention to list on the Moscow Exchange as part of its continued commitment to public markets and liquidity improvement.

“Most likely, the Moscow listing may occur already in the second half of the year. It’s reasonable that the date will become clear after the coronavirus restrictions have been lifted. On the whole, it makes little practical sense for the company to hurry with floatation at home. Historically, Russian companies see their key priority and achievement in listing on foreign exchanges,” Manzhos told PRIME.

The company’s global depositary receipts (GDRs) now trade on the London Stock Exchange. They have dived 19.4% since the beginning of the year closing at U.S. $17.98 on April 29.

“The GDRs’ mid-term dynamics follow the recent fall and partial correction of the key stock indexes in Russia, Europe, and the U.S. Technical analysis points to consolidation at $14–19 in the mid-term. We can see firming of the receipts until the end of June. Selloffs are likely to resume on the global markets in the second half of the year. This is why Mail.ru’s receipts may end the year in the middle of the $14–19 range,” Manzhos said.

(72.7263 rubles – U.S. $1)

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