WOOD Flash – Mail.ru: very strong 2Q20 results

Mail.ru has delivered very strong 2Q20 results, ahead of both our and the consensus estimates, although some of the gains, particularly in the Games segment, could reverse in 2H20E, in our view. Nevertheless, the company was able to offset the weaker ad market by expanding its ad network and customer base, reporting only a 5% drop in ad revenues. The company has also delivered exceptional growth in online education (+3.4x), with revenues exceeding RUB 1bn. We view Mail.ru as an undervalued company relative to its core businesses and peers, expecting the discount to narrow as the stock liquidity improves and with better execution. It appears to us that all the pieces are coming together, as the local listing definitely benefits liquidity (and the potential inclusion in the MSCI Russia later this year could help further), while the strong delivery during the challenging 2Q20 could be the first sign of operational progress, in our view. As further evidence of its strong performance, Mail.ru has raised its full-year revenue guidance, expecting to deliver growth “in the teens”, with annual sales exceeding its previous guidance of RUB 103-105bn, although this growth could come at the expense of lower profitability, due to changes in the revenue mix and additional investments.