Margins of Russian internet major Mail.ru under pressure in 1Q21

Margins of Russian internet major Mail.ru under pressure in 1Q21
By bne IntelliNews May 3, 2021

Russian internet major Mail.ru Group reported 27% year-on-year growth in revenues in 1Q21 under IFRS, with EBITDA up by 8% y/y making a 21% margin, and net income declining by 7% y/y.

The revenue growth was supported by acceleration in ad revenue growth (from 10% y/y in 4Q20 to 22% y/y in 1Q21), continued strong growth in MMO games revenue (+34%) and other revenue such as edtech (soaring by 2.9x y/y).

At the same time, profitability lagged revenue growth due to the investment stage for some extra services in social networks (such as Clips, music) and the temporary loss of VAT benefits in community iVAS, BCS Global Markets commented.

Meanwhile, in the games segment the EBITDA margin expanded y/y to 13% (from 7% in 1Q20). The company reiterated its guidance for 2021 of revenue growth of +18-21% (RUB127-130bn), and the EBITDA margin to improve y/y.

BCS Global Markets affirmed a Buy rating on the company's shares and suggested focusing on trends in social networks, games, education segments, as well as strategic comments for joint ventures (in e-commerce with Alibaba, in taxi/foodtech with Sberbank; update on integration into VKontakte social network).

The regulatory environment should also be monitored, such as lower taxes for IT, pre-installation of Russian apps, BCS GM analysts suggest.

Previously in March 2021 BCS GM analysts confirmed the Buy call on the shares of Mail.ru, due to prospects for solid growth and improved profitability in 2021, as well as an appealing valuation.

Sova Capital notes that Mail.ru bottom line surprised on the downside, reflecting the O2O JV’s greater-than-expected losses. The company expects the amount of cash burn in its O2O JV to increase further quarter on quarter as demand recovers, while the undersupply of drivers remains.

Similar to Sberbank ADD, Mail.ru management said that no restructuring is anticipated for the O2O. 

"However, we note that O2O's performance seems to trail Yandex respective verticals," Sova Capital commented, with the growth in the number of orders processed by Delivery Club delivery service was 60% y/y in 1Q21 versus growth of 131% y/y for Yandex.Eats. 

Samokat e-grocery generated RUB6bn in revenue from 490 dark stores in March vs. Yandex.Lavka's revenue of RUB4.8bn from 280 dark stores, implying weaker productivity per store. Citymobil's taxi service GMV rose 53% y/y, which is only moderately faster than Yandex.Taxi’s (+44% y/y), despite the latter's much greater scale.

Still, Sova Capital affirmed a Buy rating on Mail.ru shares.

As followed by bne IntelliNews, in 2020 Mail.ru with MegaFon and RDIF Mail.ru closed a major deal on AliExpress (AER) ecommerce JV, in which Mail.ru holds a 15% stake. AER showed total gross merchandise volume (GMV) of RUB229bn ($3bn) for fiscal year ending March 31, 2021 versus RUB210bn for the previous year.

Mail.ru 1Q21 review (management accounting)

Financial Highlights

1Q20

2Q20

3Q20

4Q20

1Q21

Q/Q

Y/Y

BCSe

Act v BCSe

Cons-s

Act v Cons-s

Revenue, Rb bn

22.21

25.54

25.65

32.98

28.29

-14%

27%

28.01

1%

28.22

0%

EBITDA, Rb bn

5.62

7.44

6.58

7.32

6.07

-17%

8%

6.09

0%

5.93

2%

Adj. net income, Rb bn*

2.09

3.43

2.72

1.77

1.95

10%

-7%

1.67

17%

-

 

Net income, Rb bn

2.09

3.43

2.72

1.77

-1.80

-

-

-0.33

-

-

 

EBITDA margin

25%

29%

26%

22%

21%

-1ppts

-4ppts

22%

-

21%

-

Net margin adj.

9%

13%

11%

5%

7%

2ppts

-3ppts

6%

-

-

-

Sector Highlights

1Q20

2Q20

3Q20

4Q20

1Q21

Q/Q

Y/Y

BCSe

BCSe v Act

Cons-s

Cons-s v Act

Communications and Social revenue, Rb bn

12.40

11.74

12.62

16.22

13.42

-17%

8%

 

 

 

 

Communications and Social EBITDA, Rb bn

6.61

5.72

5.85

6.60

5.97

-10%

-10%

 

 

 

 

Communications and Social EBITDA margin

53%

49%

46%

41%

44%

4ppts

-9ppts

 

 

 

 

Games revenue, Rb bn

7.70

11.02

10.67

11.08

10.95

-1%

42%

 

 

 

 

Games EBITDA, Rb bn

0.54

2.36

2.01

1.45

1.44

0%

165%

 

 

 

 

Games EBITDA margin

7%

21%

19%

13%

13%

0ppts

6ppts

 

 

 

 

* - excludes non-cash loss from JVs, which Mail.ru started to consolidate from 2021.
Note IFRS for cash flow and balance sheet metrics. Sector highlights including ESforce, while Financial Highlights - excluding. Consensus - Interfax

 

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