Mail.ru: Uncovering the value of the JVs (stays BUY)
In this report, we take a deep dive into the economics of Mail.ru’s JVs, especially the O2O businesses. We reassess our valuations of the O2O business at USD 8.6/share (from USD 3.1/share) and AliExpress Russia at USD 2.8/share (from USD 1.3/share), while keeping our Social Media, Games and New Initiatives forecasts unchanged. We have raised our price target (PT) by 9%, to USD 45 (from USD 42), maintaining our BUY rating. On our estimates, Mail.ru trades at 9.2x 2022E EV/EBITDA, with the current share price broadly reflecting the value of the Social Media and Games segments (estimated conservatively) and giving no credit to the value creation of the New Initiatives segment and the two key JVs. We believe that the successful execution of the growth strategy of the JVs, better integration into the company’s ecosystem, more transparency on operational progress, with well-defined targets and timelines, would be some of the key drivers for a stock re-rating.Mail.Ru Group is an Internet company based in the Russian Federation. Co. operates the email service [email protected] and two IM networks in Russia - Mail.Ru Agent and ICQ. Co. operates two Russian-language online social networking sites: Moi [email protected] and Odnoklassniki.ru, and owns a strategic minority equity stake in the social network Vkontakte. Co. is also engaged in developing projects in E-commerce and operating more than 40 thematic vertical sites, targeting various user categories. Co. is also Russia's predominant online games company. Co. maintains a portfolio of online games which includes 34 MMO games and over 30 games for social networking sites.
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