FOCUS: Mail.Ru, Yandex’s Q1 earnings top expectations thanks to ads, projects
By Yekaterina Yezhova
MOSCOW, May 10 (PRIME) -- Financial performance of Mail.Ru Group and Yandex, Russia’s leading Internet duo, beat forecasts in January–March with advertising being one of the pillars of their revenue growth. Both giants believe the market would prosper further and improved their outlooks for 2017 revenue, while investing in new technologies, analysts said.
“The companies unveiled strong first quarter results in late April, and they seem to be among the beneficiaries of the improving market situation,” Finam analyst Timur Nigmatullin told PRIME.
Mail.Ru Group’s aggregate segment revenue spiked 24.4% on the year to 12.636 billion rubles in the reported period. The increase was mostly secured by revenue from online advertising, which jumped 24.3% to 4.871 billion rubles, and revenue from massively multiplayer online games, which rocketed 51.8% to 3.977 billion rubles.
“The advertising segment was supported by a continued revision of advertising budgets in favor of the Internet. Revenue growth from games was mostly the result of exemption from the value-added tax and a further rise in revenue of Pixonic,” Sberbank CIB said in a research note, referring to the mobile games developer Mail.Ru Group acquired in late September 2016.
The Federal Tax Service exempted Mail.Ru Group from paying VAT on revenue from online games on the local market starting from October–December 2016.
“The company takes advantage of the strong advertising market and the presence of strategic positions in the mobile advertising segment,” Sberbank CIB said.
VTB Capital said that the company “continued to benefit from strong advertising trends, which are supported by growth at the acquired assets, although the investments in these assets and new services are eroding margins.”
Below is a breakdown of Mail.Ru Group’s revenue by some channels:
| Amount, bln rbl | Year-to-year change, % | |
|---|---|---|
| Email, portal, instant messaging | 1.109 | +9.1 |
| Odnoklassniki (OK), My world | 3.839 | -1.2 |
| VKontakte (VK) | 2.744 | +45.9 |
| Online games | 4.168 | +55.9 |
| E-commerce, search | 0.983 | +19.9 |
| Total | 12.636 | +24.4 |
Mail.Ru Group’s aggregate net profit increased 25.4% to 3.478 billion rubles in January–March, and aggregate segment EBITDA grew 10.7% to 4.884 billion rubles.
Yandex’s revenue rose 25% to 20.652 billion rubles, including 19.515 rubles from online advertising, up 23%.
Below is a breakdown of Yandex’s revenue by some segments:
| Amount, bln rbl | Year-to-year change, % | |
|---|---|---|
| Search and portal | 18.656 | +23 |
| E-commerce | 1.295 | +24 |
| Taxi | 0.778 | +75 |
| Classifieds | 0.371 | +54 |
| Total revenue | 20.652 | +25 |
“I view the average cost per click that grew 10% on the year as the key point in the report, because it became the main growth driver. Higher prices of advertisements, in their turn, became possible thanks to a robust recovery of the advertising market in all the core segments and the company’s investment in the technologies that hugely improved the quality and effectiveness of price forming of contextual advertisements,” Nigmatullin at Finam said.
“Besides, strong figures were shown by the taxi business with the number of rides skyrocketing by 484% on the year. Its share in Yandex’s revenue could reach 10% in the long-term. According to my calculations, the taxi business accounts for up to 20% of the company’s value, but it isn’t profitable yet and undermines the EBITDA margin.”
The company’s net income shrank 23% on the year to 819 million rubles, and adjusted EBITDA went up 19% to 6.874 billion rubles.
The Internet behemoths revised up their 2017 revenue growth guidance: Mail.Ru Group upgraded it to 17–21%, and Yandex to 17–20% from 16–19% seen previously by both.
Investors welcomed the better-than-expected results. Mail.Ru Group’s global depositary receipts in London added 52.7% since the beginning of 2017 to U.S. $28.09 on May 4. Yandex’s common shares in Moscow moved up 26.7% to 1,581 rubles, and its American depositary receipts in New York gained 31.9% to $26.84.
(58.5382 rubles – U.S. $1)
End
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