FOCUS: Yandex, Mail.ru can show solid Q4 figures, foreign investor bill on watch

By Yekaterina Yezhova

MOSCOW, Nov 5 (PRIME) -- After beating market expectations with July–September results, Russia’s top Internet companies, Yandex and Mail.ru Group, are likely to perform even better for the rest of the year, while their quotes will depend heavily on the progress of a bill limiting foreign capital in the key information resources.

“We see results of Yandex and Mail.ru Group as strong. Both companies reported results exceeding market consensus, even though expectations were high enough. Yandex still outstripped its competitor with revenue growth of 38% against 25%,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

Yandex’s revenue increased 38% on the year to 45 billion rubles driven mainly by advertising and the taxi business. Total online advertising revenue grew 21% to 31.2 billion rubles. It includes “revenues derived from performance and brand advertising on Yandex properties and in our advertising network,” the company said in a quarterly report.

Revenue related to the Taxi segment jumped 89% to 9.6 billion rubles. It comprises the Taxi business, including Yandex.Taxi and Uber in Russia and neighboring countries; the Food Delivery business, including Yandex.EATs, UberEATs, and Yandex.Chef, a meal kit subscription service; and the Self-Driving Cars division revenue.

“This increase mainly reflected the solid performance of our ride-sharing business driven by an increase in the number of rides and incentives optimization, a strong growth of our corporate Taxi offering, which we recognize on a gross basis, as well as the growing contribution of our food delivery businesses,” Yandex said.

Mikhailin said growth of Yandex’s revenue slowed down compared to two previous quarters because of a high base effect in the search segment and taxi, but the company still shows excellent results.

“Fundamentally, the company is very attractive, and the main risks are of a regulatory character or are related to its shareholder structure. In October–December, we expect solid results in line with the figures for July–September with a slower growth rate because of the high base effect,” the analyst said.

“The lack of clarity about the purchase of assets of taxi aggregator group Vezyot should be also taken into account, and a decision of the antitrust service on the matter is expected in October–December.”

Investment company IC RUSS-INVEST analyst Dmitry Bedenkov said that Yandex trades in line with its global peers and its growth potential depends on the fundamentals and a bill seeking to cap foreign money in significant information resources.

“The price-to-earnings ratio stands at about 39x against 27–29x of (Google’s parent company) Alphabet and (Chinese technology company) Baidu,” he said.

Mail.ru Group’s total revenue increased 25.1% on the year to 21.4 billion rubles, pushed upward mainly by advertising and massively multiplayer online (MMO) games. Online advertising revenue rose 21.8% to 8.9 billion rubles. MMO games revenue advanced 20.5% to 6.9 billion rubles.

“We continue to expect a solid October–December given seasonality having just launched (game) American Dad (mobile) and are preparing for the launch of Lost Ark (PC). The launch of MY.GAMES Store, an international PC games platform of MY.GAMES is also in the pipeline for October–December. We have been investing in these launches already in July–September to ensure the broadest possible reach and solid initial traction,” Mail.ru Group said in a report.

Mikhailin at Veles said Mail.ru Group showed a high growth of revenue on the quarter and a high margin. “In October–December, deals with Sberbank and (games producer) Modern Pick are to be closed. We also expect a huge improvement of the margin upon the last quarter of the year thanks to the seasonal factor of the games segment,” he told PRIME.

“We underline rock-bottom attractiveness of the stocks of Yandex and Mail.ru Group, and, in view of huge recent decreases in their quotes, find them beneficial for a purchase in the absence of further depressing factors.”

Foreign investor bill

Recent hot discussions of a bill seeking to limit foreign involvement in capital of significant local information resources have hit quotes of Yandex and Mail.ru Group heavily, but the government’s idea to raise the notch to 50% of voting shares minus one share from the earlier proposed 20% calmed the market.

Yandex’s common shares lost 7% over the month, closing at 2,125.80 rubles on October 31 in Moscow, and its American depositary receipts decreased 4.6% to U.S. $33.39 in New York. Mail.ru Group’s global depositary receipts added 1.3% over the month to $21.24 in London.

Investment company UralSib Capital sees continued volatility of Yandex’s stocks in the short term because of the bill.

Mikhailin at Veles said, “Approval of the bill capping foreign capital to 50% minus one share will not force the companies to any actions because their current shareholder structure will meet the requirements. If the bill is endorsed with a 20% limit, changes should be made, including a revision of voting stakes. A new discussion should start probably in November.”

“At present, we think that the version of 50% minus one share is more likely and has already won support of different authorities, in particular, the parliament’s upper house.”

(64.0316 rubles – U.S. $1)

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