FOCUS: Yandex beats VK by Apr–Jun results, quotes growth prospects

By Yekaterina Yezhova

MOSCOW, Aug 22 (PRIME) -- The business structure and safety measures helped Yandex to outperform VK in April–June, while both Internet companies feasted on advertising sales, and analysts think Yandex’s shares are likely to advance.

“Revenue is the key success indicator of the IT companies during the rearrangement of the Russian-speaking segment of the Web. From this point of view, Yandex’s results look more solid,” investment company Algo Capital senior risk manager Vitaly Manzhos told PRIME.

Yandex’s total revenue increased by 45% to 117.7 billion rubles in April–June, as calculated under the U.S. GAAP standards. VK’s revenue climbed 11% to 32.8 billion rubles in the same period, and adjusted revenue added 4% to 31.2 billion rubles, under the International Financial Reporting Standards.

“By total outcome, Yandex certainly demonstrated stronger April–June results than VK. Yandex had much faster revenue growth, improved the margin significantly. It stems in many aspects from the structure of segments and the impact of some divisions on the overall results,” investment company Veles Capital analyst Artyom Mikhailin said.

He added that both companies performed strongly in advertising thanks to weaker competition. Yandex’s online advertising revenue increased by 22% to 48.4 billion rubles, and VK’s revenue in the segment grew by 28% to 14.3 billion rubles.

“The gaming business let VK down as more than 70% of its income was generated in foreign currencies abroad. This income sagged naturally as the ruble firmed. The company is not launching new games now, and the global gaming market is depressed by the macroeconomic factors,” Mikhailin said.

VK’s massively multiplayer online (MMO) games revenue decreased by 2% to 9.2 billion rubles, and MMO games adjusted revenue shrank by 16% to 8 billion rubles.

“Yandex did not have evident outsiders in its structure but the classifieds services that secure a tiny part of revenue,” Mikhailin said. Revenue of Yandex’s classifieds segment – which includes Auto.ru, Yandex Realty and Yandex Rent – rose by 5% to 2.1 billion rubles.

The companies’ approach to investment was also different. “Yandex tried to save as much as it could, the company suspended hiring and limited investment in some directions. VK, on the contrary, did not switch to the saving mode, and their marketing and staff costs increased faster as new projects were launched,” the Veles Capital analyst told PRIME.

The core distinction between the Internet giants is that VK has actually turned into a quasi-state firm after a recent change of the key shareholder. “It means that VK will have all the generic features of companies with state participation. Now it may become very much similar to Rostelecom,” Manzhos at Algo Capital said.

“The management of such companies is little interested in the growth of their market capitalization and serious improvement of financial results. The drive for active promotion of their own products may be replaced with a penchant for scaling up the business through mergers and acquisitions. Besides, such firms may be inclined to widening debts unnecessarily.”

As VK’s upside Manzhos points to strong support from the government, including financially if needed.

“While staying formally independent, Yandex should remain an innovative company that does not fear strong moves, testing new opportunities and making mistakes,” Manzhos said, adding that the ownership structure of Russia’s Yandex, whose parent company is Dutch firm Yandex N.V., will alter profoundly sooner or later.

“Perhaps, it would be a change of the controlling shareholders or in a form of redomiciliation. There is nothing certain on the matter yet, we may see several plot twists,” the analyst said.

Yandex’s shares will have a higher potential to recover and rise sustainably, Manzhos added.

He said that Yandex’s shares can advance to 2,500–3,000 rubles by the end of 2022. The stock closed at 1,936.60 rubles on August 19 on the Moscow Exchange.

“VK’s mid-term prospects are not as evident. It is quite probable that their recovery to the range of 500–550 rubles and higher will take many months. The dynamics of these shares can depend more on the changes of the external political environment,” the Algo Capital analyst said.

VK closed the week at 414.40 rubles.

(59.1321 rubles – U.S. $1)

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