Mail.Ru Group Limited (MAIL:LI, hereinafter referred as 'the Company' or 'the Group'), one of the largest Internet companies in the Russian-speaking Internet market, today releases unaudited IFRS results and segment financial information for the three months ended 30 June, 2017.
Q2 2017 Group aggregate segment revenue grew 36.8% Y-o-Y to RUR 13,127 million.
Q2 2017 Group aggregate segment EBITDA grew 6.5% Y-o-Y to RUR 4,595 million.
Q2 2017 Group aggregate net profit grew 2.1% Y-o-Y to RUR 3,038 million.
Six months ended 30 June 2017
H1 2017 Group aggregate segment revenue grew 33.3% Y-o-Y to RUR 26,328 million.
H1 2017 Group aggregate segment EBITDA grew 12.8% Y-o-Y to RUR 9,846 million.
H1 2017 Group aggregate net profit grew 18.5% Y-o-Y to RUR 6,812 million.
Net cash position as of 30 June 2017 was RUR 8,597 million.
Commenting on the results of the Company, Dmitry Grishin, Chairman of the Board, and Boris Dobrodeev, CEO (Russia) of Mail.Ru Group, said:
"We are pleased to report our results for the second quarter of 2017 where we have continued to see strong growth in all areas. Q2 revenue, including all acquisitions on a pro forma basis, grew 36.8% Y-o-Y to RUR 13,127m. As we have stated previously, 2017 remains an investment year for us and we continue to significantly invest and expand our new projects which, at this stage, are not contributing to EBITDA. As such EBITDA grew 6.5% Y-o-Y to RUR 4,595m.
On 28th June, we announced that we had received formal notification from the tax authorities that a significant part of our Russian IVAS revenues are eligible for exception from Russian VAT. This change was applicable from January 1st. As a result of this, we are presenting our Q1 2017 numbers to reflect this change on a pro forma basis. Q1 2017 revenues would have grown 30.0% Y-o-Y to RUR 13,201m from the reported 24.4% Y-o-Y growth to RUR 12,636m and Q1 2017 EBITDA would have been RUR 5,251m, compared to the reported RUR 4,884m. H1 revenues, therefore grew 33.3% Y-o-Y to RUR 26,328m with EBITDA growing 12.8% Y-o-Y to RUR 9,846m.
Advertising revenue growth remained strong in Q2, with the trends that we have seen over the last few periods continuing. Despite us continuing to use part of our ad inventory to boost our new products (mainly Youla, Am.ru, Delivery Club and BeepCar), advertising revenues grew 28.7% Y-o-Y to RUR 5,395m. Growth was driven by both the further development of our advertising technologies and the adoption of our ad formats by advertisers. As in previous periods the fastest growing advertising revenues remained in-feed advertising across the social networks and in video and mobile. We continue to see advertising budgets shift from all other mediums to digital, and especially to mobile. Through H2 2017, we will continue to focus on the growth of mobile and video advertising and on the continued roll out of new ad technology. Engagement continues to rise across all platforms, better ad targeting and other tools increase efficiency and our unique market position on mobile allows us to continue to take advantage of the market trends.
In Q2, VK continued to perform strongly with further growth in engagement. Revenues grew 59.1% Y-o-Y to RUR 3,074m. Advertising continued to be the bulk of the revenues, and while VK IVAS increased in Q2, advertising revenues grew faster than total revenues. We continue to make improvements to the platform and the user experience. In Q2, we updated the VK for business section, added new ad formats. VK stories are becoming a good driver of user engagement. Despite the blocking of VK in Ukraine, and the usual seasonal effects, total and mobile monthly active users continued to grow Y-o-Y to 91m and 77m in June respectively.
For the rest of 2017, the focus will remain on mobile newsfeed advertising. As previously commented, we expect the ad load and pricing to continue to increase from the current levels. We continue to see significant further opportunities for VK with both an expanding user base and an increasing number of features.
In Q2 2017, on a pro forma basis our MMO games revenue grew 53.6% Y-o-Y to RUR 3,850m. International revenues also continued to grow and in Q2 accounted for around 50% of total MMO revenues. Q2 growth was driven by both ongoing success in existing titles and new releases. Warface and War Robots continue to perform well and are our two largest games. Revelation also continues to deliver good performance both domestically and internationally. We have also had a number of successful new releases, most notably the console version of Skyforge which has been well received and the successful launch of HAWK. Through the rest of 2017 there will be a number of additional releases including a significantly updated version of Armored Warfare. As such, we expect to see continued good growth from games in 2017.
In Q2 2017 IVAS revenues grew 24.4% Y-o-Y. While aspects of mobile IVAS remain challenging we are pleased with the initial results of the new cross-platform IVAS initiatives specifically the subscription services including VIP services. There will be further new mobile products through the year. Including the effect of the VAT changes, we now expect IVAS revenues to see solid growth for the rest of the year.
Since the acquisition of Delivery Club in November 2016, we have seen very significant growth in all operating metrics. In May we announced the acquisition of ZakaZaka which we are now integrating into Delivery Club. During Q2 2017 the total number of monthly orders for the combined Delivery Club business hit a new high of over 950,000 and the number of restaurants exceeded 5,750. We continue to make a number of improvements to the product to make it both easier for the user to order, and easier for the restaurants to manage and process orders. Based on the current trend lines we anticipate that Delivery Club H2 2017 revenues will continue to experience very strong growth. Delivery Club will remain in investment phase for the rest of 2017 as it consolidates its market leading position. However, while the business does not contribute to EBITDA at present we would expect it to move into profitability during 2018.
Since its launch around 18 months ago, our location-based marketplace - Youla - has seen consistent and strong user growth. This has continued in Q2 2017 with a new high of 20m monthly active users and over 4m daily active users on all platforms. The app remains consistently in the Top-5 Overall in Russia in the App Store and Google Play combined (according to App Annie). Over the last twelve months the Youla app demonstrated the highest gain in monthly audience among all apps measured by Mediascope (Russia, cities 700k+, age 12-64, June 2017).
In April 2017, we announced the acquisition of Am.ru, one of the major auto classified sites. Am.ru is currently being integrated into Youla. As we have previously stated we will continue to examine the potential of some limited monetization experiments later in H2 2017 however the main focus for this year will be the further driving of user numbers and engagement. In Q2 we added a number of new features to Youla such as full integration into OK and the addition of full seller functionality to the desktop version. User feedback and engagement remain very positive and hence we anticipate further user growth through 2017.
In Q1 2017, we launched our long distance ride sharing service BeepCar. In February, the service was introduced in Russia, and later expanded to 18 more countries. During Q2 we saw strong growth in mobile app installs which reached 1.9m by June. In the near term we are focused on building user numbers and hence BeepCar currently is not a revenue contributor.
In Q2 the cash generating capacity of our business remained unchanged and cash conversion was as expected. As a result net cash, post M&A related payments, at the end of Q2 was RUR 8,597m.
Since Q4 2016, we have made a number of acquisitions, all of which fit well with the core strategy and mobile assets of the Group and present significant opportunities for the future. With a strong balance sheet and unchanged cash generation capabilities we will continue to examine further similar-sized acquisition opportunities in the future.
We had a strong H1 2017 with good contributions from advertising, games, Delivery Club and with IVAS returning to growth in Q2. We are encouraged by the progress in games, and see great potential as Delivery Club continues to benefit from both a fast growing market, and increased user engagement.
The blocking of our products in Ukraine during Q2 has had some adverse effects on the revenues and we estimate the negative effect of around 1.5% of total revenues in 2017. Despite this, the rest of the business continues to perform very well. As such, and taking into account the effect of Ukraine, based on current visibility, we are pleased to increase our FY 2017 revenue guidance from previous guidance of 17-21% Y-o-Y pro-forma revenue growth to pro-forma revenue growth of between 23-26% Y-o-Y to RUR 52.6-53.9bn. FY 2017 remains a year of significant investment in the new products and given the significant potential that we see in them we will continue to aggressively invest in our new initiatives. We do not expect them to contribute to EBITDA this year. We also continue to not anticipate any meaningful revenue contributions from BeepCar or Youla in 2017. Taking this into account, we expect our 2017 EBITDA around RUR 20bn."