Mail.Ru Group Limited Preliminary Trading Update for Q3 2012

25.10.2012

25 October 2012.  Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), a leading Internet company in the high-growth Russian-speaking Internet markets, today provides an update on the preliminary unaudited segment revenues for Q3 2012. 

Q3 2012 Performance Highlights

• Q3 2012 Group aggregate segment revenue grew 36.5% Y-o-Y to RUR 4,965 million (9 months 2012 Group aggregate segment revenue grew 44.4% Y-o-Y)
• Monthly audience (TNS Russia) of Mail.Ru portal in September 2012 reached 31.9 million Russian users with Q3 average monthly Y-o-Y growth of 16%
• Monthly audience (TNS Russia) of Odnoklassniki in September 2012 reached 21.8 million Russian users with Q3 average monthly Y-o-Y growth of 24%

Key Recent Developments

• Email service localisations for CIS countries (Kazakhstan, Belarus, Uzbekistan)
• New email list design with user profile pictures
• News@Mail.Ru applications for iPhone, Android and WP7
• New features for groups in OK: video, photo collages and recommendations based on user interests
• OK introduced photo filters in applications for iPhone and WP7
• Ability to log into third party mobile applications with OK account (mobile authorization)
• Web Agent now supports calls to fixed-line and mobile phones and SMS
• Launched ICQ 8 for Windows featuring new design, better voice and video calls and supporting calls to fixed-line and mobile phones
• Launched free-to-play MMORPG Dragon Nest
• Launched Allods in China
• Warface has exceeded 55,000 PCU
• Search market share was 8.2% in September 2012 (LiveInternet)
• Launch of own web-browser Amigo integrated with main social networks (OK, My World, VK, Facebook)
• Money@Mail.Ru obtained a non-credit financial organisation status
• Two major events held - 2012 Russian Code Cup and Mail.ru Group Technology Forum
• Mail.Ru Group moves to 100% ownership of Headhunter having acquired the remaining 2.8%
• Free float increased to 36%

Commenting on the results of the Group, Dmitry Grishin, Co-Founder and CEO of Mail.Ru Group, said:

"I am pleased that the Group has continued the positive growth trajectory of H1 2012 into Q3 2012. Aggregate segment revenues grew 36.5% Y-o-Y to RUR 4,965 million, contributing to 9 months 2012 aggregate segment revenue growth of 44.4% Y-o-Y.

Our strategy has been proving successful and we continue executing on it in our core Russian-speaking market. Increasing and continued focus on mobile is evident in the growth of our mobile audience – 38% of OK’s average monthly audience and 50% of Mail.ru Agent average monthly audience in Q3 accessed the service from a mobile device. Continued product improvements across the board drove audience and engagement growth of OK as well as increased overall audience growth in our core email and portal service.   

Our core products generate increasingly diverse revenue streams – notably, in Q3 2012 user generated revenues (MMO and Community IVAS) contributed 54% of our aggregate segment revenue, compared with 49% in Q3 2011. At the same time, online advertising contributed 34% of our revenue compared to 39% in Q3 2011. Community IVAS has continued growing rapidly at 72% Y-o-Y in Q3. The main driver of this growth is unchanged - the increase of paying user engagement.

Evidenced by ongoing improvement in Q3 Y-o-Y revenue growth of 30.8%, we continue to execute on our MMO games strategy. Most of our core games continued their robust performance during Q3. In addition, Warface (now a top 4 game) has seen increasing traction in terms of both users and revenues and we have also launched our second licensed AAA game this year (Dragon Nest) in September.

While context advertising continued to grow at a healthy rate, we have seen a slowdown of growth in display revenue. In Q3 this was mainly driven by the previously discussed planned reduction in advertising inventory. However, during late Q3 and early Q4 we have also noted deterioration in the display advertising market. As a result, we expect the weakness in the display revenue growth rate to continue into Q4 2012.

Notwithstanding the more challenging conditions in the display advertising market, the diversity of our revenue base, the underlying structural drivers and the ongoing execution on our strategy allows us to reiterate our FY 2012 guidance of Group aggregate segment revenue growth of 40% and aggregate segment EBITDA margin percentage in the low fifties."

 

Conference call

The Mail.ru Group management team will host an analyst conference call at 14.00 UK time (17.00 Moscow time, 9.00 U.S. Eastern Daylight Time), on Thursday 25th October 2012, including a Question and Answer session.

To participate in this conference call, please use the following access details:

Confirmation Code:	39610947
Participant Toll Free Telephone Numbers:
Russia Free Phone	810 800 2232 2044
UK Free Phone	0800 694 8016
USA Free Phone	1866 691 1171
Standard International Call	+44 (0) 1452 557535

 

Investor Relation Contacts:  

Matthew Hammond 

Managing Director Mail.Ru Group

Phone: +971 505 56 1315

E-mail: hammond@corp.mail.ru

  

Press Contacts:  

Ksenia Chabanenko 

Phone: +7 916 0906626

E-mail: ks@corp.mail.ru

Cautionary Statement regarding Forward Looking Statements 

This press release contains statements of expectation and other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "forecast", "intend", "will", "could", "may" or "might",  the negative of such terms or other similar expressions including "outlook" or "guidance".  The forward-looking statements in this release are based upon various assumptions that are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and may be beyond the Group's control.  Actual results could differ materially from those discussed in the forward looking statements herein.  Many factors  could cause actual results to differ materially from those discussed in the forward looking statements included herein, including competition in the marketplace, changes in consumer preferences, the degree of Internet penetration and online advertising in Russia, concerns about data security, claims of intellectual property infringement, adverse media speculation, changes in political, social, legal or economic conditions in Russia, exchange rate fluctuations, and the Group's success in identifying and responding to these and other risks involved in its business, including those referenced under "Risk Factors" in the Group's public filings.  The forward-looking statements contained herein speak only as of the date they were made, and the Group does not intend to amend or update these statements except to the extent required by law to reflect events and circumstances occurring after the date hereof. 

About Mail.Ru Group

Mail.Ru Group (LSE:MAIL, listed since November 5, 2010) is a leading Internet company in the high-growth Russian-speaking Internet markets (Russia is Europe's largest Internet market measured by number of users, comScore). Mail.Ru Group's sites reach approximately 82% of Russian Internet users on a monthly basis (comScore, August 2012) and the Company is in the TOP 5 largest Internet business, based on the number of total pages viewed  (comScore, August 2012). 

In line with the Communitainment (Communications + Entertainment) strategy the Company is moving rapidly to build an integrated communication and entertainment platform. The Company operates two of the three largest Russian language online social networking sites (Odnoklassniki and Moi Mir (or "My World")). The Company also operates the two largest Instant Messaging networks in Russia (Mail.Ru Agent and ICQ), Russia's leading email service and Russia's largest Internet portal Mail.ru, and the Company operates Russia's largest online games platform. 

The Company holds strategic minority equity stakes in VKontakte (39.99%) and Qiwi, formerly OE Investments (21.35%). The Company also holds small minority stakes in international Internet companies including Facebook (20.4m shares/0.75%*), Zynga (10.4m shares/1.17%*) and Groupon (28.0m shares/4.12%*) as well as a number of small venture capital investments in various Internet companies in Russia and Ukraine.

*As of October 25th, 2012, percentages based on estimated fully diluted share count

Q3 2012 Trading Update*

RUR millions	Q3 2011	Q3 2012	Growth
Display advertising	999	1,075	7.6%
Context advertising	422	624	47.7%
MMO games	892	1,166	30.8%
Community IVAS	874	1,503	72.0%
Other**	450	598	32.8%
Group aggregate segment revenue	3,637	4,965	36.5%

(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding

(**) Including Other IVAS revenues

Note: Group aggregate segment revenue is calculated by aggregating the segment revenue of the Group's operating segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. See "Presentation of Aggregate Segment Financial Information" below. 

Liquidity

As of 30 September 2012, the Group's net cash balance (including term deposits) was RUR 8,185 million, or USD 265 million[a], and the Group had no debt outstanding.

 

Presentation of Aggregate Segment Financial Information 

The Group aggregate segment financial information is derived from the financial information used by management to manage the Group's business by aggregating the segment financial data of the Group's operating segments and eliminating intra-segment and inter-segment revenues and expenses.  Group aggregate segment financial information differs significantly from the financial information presented on the face of the Group's consolidated financial statements in accordance with IFRS. In particular:

 

• The Group's segment financial information excludes items that management believes obscure the core operating performance of the business. Such adjustments affect such major areas as revenue recognition, deferred tax on unremitted earnings of subsidiaries, share-based payment expense, impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of non-core associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.
• The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question, so long as the Group held at least one share of such entities during such periods. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
• Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.