FOCUS: VK posts high Jan–Sep revenue growth, investors eager to see margin

By Yekaterina Yezhova

MOSCOW, Nov 20 (PRIME) -- Resumed online advertising boosted revenue of Russian Internet company VK by a third in the first nine months of the year, but the absence of the margin may point to its poor performance, analysts say.

“The company showed strong revenue dynamics, the online advertising segment demonstrates robust results. It did not disclose the margin, this is why it is hard to draw final conclusions,” Dmitry Puchkaryov, a stock market expert at BCS World of Investment, told PRIME.

“The margin has been recently poor, and we can assume that the situation has hardly changed dramatically. The refusal to disclose it may be related to the ongoing pressure on the results and worse dynamics compared to the previous years.”

VK’s revenue increased by 37% on the year to 90.3 billion rubles in January–September that “was mainly driven by a 47% year-to-year growth in online advertising revenue to 55.4 billion rubles,” the company said in its November 9 statement adding that “revenue from online advertising in the medium and small business segment increased by 46% on the year, and the segment of large advertisers is also recovering.”

The Russian Association of Communication Agencies earlier calculated that the country’s advertising market expanded by 27% on the year to 315 billion rubles.

“We are positive about VK’s results,” Cifra Broker analyst Daniil Bolotskikh told PRIME.

“Foreign players’ retreat from the Russian market opens vast prospects for VK’s development. We think that VK will continue to boost revenue by over 30% per year thanks to progress of the businesses that bring now a smaller part of revenue. We do not rule out that VK will try to grow non-organically and will open new business directions soon,” he said.

Analysts expect 2023 to bring a 29% increase of the top line to 126 billion rubles. This compares to a 19% increase of revenue in 2022 to 97.8 billion rubles.

Freedom Finance Global analyst Vladimir Chernov said VK’s results are strong and expects the group’s 2023 revenue at 124 billion to 126 billion rubles.

VK’s revenue consists mainly of the Social Networks and Content Services segment, which accounted for 79% of the January–September total revenue, while EdTech accounted for 12%, VK Tech for 5%, and New Business Lines and Other for the remaining 4%.

Revenue of the company’s key Social Networks and Content Services segment – comprising VKontakte, Odnoklassniki, Dzen, and others – rose by 39% on the year to 71.3 billion rubles on the back of expansion of social network VKontakte, whose average daily audience rose by 10% on the year to 53.5 million users.

Revenue of the EdTech segment – comprising Skillbox, GeekBrains, SkillFactory, and others – advanced by 38% on the year to 11.1 billion rubles thanks to “demand for educational platform’s courses and the consolidation of the online platform for schoolchildren Uchi.ru on February 17,” VK said.

Revenue of the VK Tech – comprising VK Cloud and VK WorkSpace – rose by 63% on the year to 4.8 billion rubles.

VK outperforms the market significantly in this segment, Bolotskikh at Cifra Broker said referring to iKS-Consulting that expects the cloud market to grow by 26% per year in 2023–2026.

The company’s ordinary shares gained 4.8% over the week and 42.1% since the beginning of the year closing at 620.20 rubles on November 17 on the Moscow Exchange.

“The mid-term outlook on VK’s shares is restrained. The lack of information about the margin carries risks for investors. The company shows solid revenue growth, but there is high uncertainty about investment plans – it may now depress the profit, while the payback and efficiency of projects in the long-term is doubtful,” Puchkaryov at BCS said.

Bolotskikh at Cifra Broker said there were massive share sales after trading resumed on October 20 after a one-month pause when the company moved to the Kaliningrad Region from the British Virgin Islands.

“In our view, these sales result from a great deal of unconverted securities that the investors purchased from the London Stock Exchange. Such sales mean taking profit and should end till the end of the year. This translates into a 12-month price target of 800 rubles per share,” he said.

(89.1237 rubles – U.S. $1)

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