VK Company (VKCO)
VK Company Limited unaudited IFRS results for Q3 2022
November 10, 2022. VK Company Limited (LSE, MOEX: VKCO, hereinafter referred to as “VK” or "the Company" or “the Group”) today releases an unaudited IFRS report and segment financial information for the three and nine months ended 30 September 2022.
VK key results in Q3 2022:
Growth of the key operating and audience metrics was achieved due to strategic focus on enhancement of VK’s leadership position among content, entertainment and education IT-services, as well as further development of innovative business solutions.
Communications and Social segment
The segment’s revenue was up 24.3% YoY to RUB 18.5 bn in Q3 2022 with online advertising revenue being the largest revenue component. VKontakte was the main driver with growth of its adjusted revenue approaching 34% YoY in Q3.
The segment’s revenue includes revenue from Dzen and News since their acquisition in early September.
Adjusted EBITDA was up 30.4% YoY to RUB 9.2 bn in Q3 (with a margin of 49% vs 47% a year ago) driven by higher revenue, reduced remuneration to agents/partners and received IT benefits.
Communications and Social Segment Performance – Q3 2022 & 9M 2022
VKontakte has further strengthened its leading position among the social networks in Russia with a new peak in quarterly average MAU at 76.9 mn (+6.9% YoY) and record-high DAU of 49.4 mn (+7.1% YoY) in Q3 2022. In Q3, the average total time spent on VKontakte stood at 45.2 minutes per day*. VKontakte was reaching 85% of the Russian-speaking internet audience in September, with 54% visiting the platform daily**.
A major update of the VKontakte mobile app was launched in Q3, with maximum focus on content. Updated newsfeed design and user profile were already rolled out.
The number of VK Mini Apps continues to grow, up 73% YoY in September to 63,800, with MAU reaching 38.4 mn in Q3 (+15% YoY). In-app ad revenue of mini apps on the VK Mini Apps platform rose by 45% YoY in Q3. VKontakte increasingly invested in key mini-apps Health and Dating, with their MAU at 7.6 mn and 1.9 mn respectively in Q3. The number of titles in the VKontakte Mobile Games catalog grew by 160% YoY, with 59% YoY growth in in-game purchases on mobile in Q3.
Our Key video technology platforms (VK Video and VK Clips) reached a new record of 2.41 bn in average combined daily views in Q3. VK Video (1.69bn daily views) launched monetization of live streams for content creators as well as the beta version of the content creator cabinet. It has also further enhanced its content recommendation system. VKontakte also saw growth in video views on the social network itself with 1.16 bn (+45% YoY) in average daily views in Q3.
VKontakte is seeing an increase in content creation and consumption. In Q3, the number of communities created in Russia increased by 28% YoY, while the number of confirmed friend requests up 34% YoY. The number of news feed views increased by 45% YoY. Among the Q3 highlights was the launch of vmoji, a tool to create personal virtual avatars using facial recognition technology and VKontakte’s proprietary generative ML models. Since launch, 6 mn users have launched their digital avatars as of 7 November. VKontakte also launched instant chat translation with multiple language support to help users from different countries and cultures communicate.
In Q3, the total earnings communities made using official VKontakte monetization tools (video monetization, partnership program, and VK Donut) grew by 88% YoY. Creators using VK Donut earned over RUB 126 mn in Q3 (+205% YoY), with the number of communities using VK Donut up 48% YoY and the number of subscribers making payments through VK Donut up 107% YoY in Q3.
Monetization capabilities for communities and content creators are expanding. In Q3 a beta of an updated version of the partnership program for communities was launched, providing access to additional revenue through utilization of new formats inside VKontakte, including by publishing stories or short videos.
In Q3 the number of SMB advertisers in VKontakte increased by 65% YoY, while SMB promotion spending grew twice YoY.
* Source: Mediascope, Q3 2022, Russia (all cities, age 12+), Mobile and Desktop.
** Source: Mediascope, September 2022, Russia (all cities, age 12+), Mobile and Desktop.
Average Russia MAU for OK stood at 38 mn in Q3, with the best seasonal audience metrics dynamics for the past several years registered in September. Audiences demonstrated strong engagement sending more than 6.4 bn virtual gifts, 325 mn postcards and 490 mn stickers during the quarter. The number of new user registrations in September grew +8.3% YoY, driven by the 25-45 y.o. age group, with new users demonstrating above average engagement. The number of created communities grew by 66.3% YoY in Q3.
Moments MAU reached 28.4 mn in Q3 (+8.8% YoY). The number of views increased by 32% YoY and reached 497 mn.
Advertising revenue from small and medium size businesses (SMBs) grew 26.5% YoY in Q3, with the number of unique paying SMBs increasing by 12.9% YoY. Total number of business communities publishing content on OK grew by 44.5% YoY in Q3.
In Q3 OK announced its new positioning as a social network centered around hobbies and interests. A key service called “Hobbies” went live on September 1 for all OK users. The social network’s mobile app were also updated, with enhanced navigation with a personalized user menu based on interests. OK has also overhauled its content recommendation system and added monetization for communities featuring video content.
Recommendation platforms (Dzen, Pulse, Relap, News)
Pulse DAU (including vendor audiences) reached 11.2 mn (+24.8% YoY) in Q3 while MAU was 92.8 mn (+7% YoY). Relap’s DAU in Q3 grew to 7.3 mn (+14.9%), MAU reached 107 mn (+26% YoY). Combined Adjusted revenue reached RUB 434 mn in Q3 (+26% YoY). Time spent per active user increased by 49.8% YoY to 19.3 minutes in Q3.
On September 12, VK closed the deal to purchase content platforms Dzen and News from Yandex in exchange for Delivery Club. More information on the deal is available on our website: https://vk.company/en/investors/info/11262/
On September 27, VK announced sale of MY.GAMES. The deal has incorporated all MY.GAMES assets including its studios and game products. The total deal value stood at USD 642mn. More information on the transaction can be found in the related press release: https://vk.company/en/investors/info/11276/
Games Segment Performance – Q3 2022 & 9M 2022 (For reference)
The segment’s revenue rose by 20.3% YoY to RUB 2.6 bn. EdTech delivered a positive Adjusted EBITDA of RUB 459 mn in Q3 compared to a loss of RUB 455 mn in Q3 2021 due to optimized expenses and the effect of IT benefits.
EdTech Segment Performance – Q3 2022 & 9M 2022
As at the end of September, our consolidated platforms reached 12.0 mn in combined cumulative registered students, which is 1.4x higher YoY, with 0.7 mn in new registrations during the quarter. Cumulative number of paying students reached 465,000 (+1.7x YoY), with almost 45,000 new paying students joining during the quarter.
New Initiatives segment
The segment’s revenue has returned to growth, up 6.6% to RUB 3.1 bn in Q3. Main growth drivers were B2B services (including Cloud), VK Play, and VK Clips. Adjusted EBITDA burn in Q3 amounted to RUB 1.0 bn (vs. the loss of RUB 0.9 bn in Q3 2021) which implies a margin of -32% vs -31% a year ago. Losses are driven by the ongoing investment into VK Play, VK Clips, and other new initiatives.
New Initiatives Segment Performance – Q3 2022 & 9M 2022
B2B (including Cloud)
B2B revenue exceeded RUB 1 bn in Q3, with 28% YoY growth. VK Cloud remains the largest contributor. The fastest growing products in Q3 were Corporate Communication Services (+343% YoY) and tax monitoring platform VK Tax Compliance (+129% YoY).
VK Clips (short video)
Daily views of VK Clips averaged 717 mn (+152% YoY) in Q3. The number of new Clips published rose by 312% YoY, and the number of content creators increased by 122% YoY.
Average MAU reached 31 mn in Q3, with the service showing positive EBITDA for the first time.
In Q3 VKontakte opened its API for video call control, added call planning, launched the beta-version of its app for meeting rooms and conference halls, and launched its first large-scale promo campaign.
VK continues to develop its own local gaming services under the VK Play brand following the sale of MY.GAMES. Since its launch in April, VK Play has already become the largest video game platform in Russia offering a catalog of games, cloud gaming, the VK Play Live streaming platform, a tournament platform, and news media. VK Play has already above 7 mn registered accounts. As at the end of Q3, VK Play had more than 13,000 titles on its platform (including more than 350 games available through cloud gaming). By the end of the year, the service is planning to add more features for players to fulfil its primary near-term goal of expanding the platform’s audience.
Since the beta launch of RuStore (the Russian app store for Android), more than 1,700 apps have been added to its catalog, generating more than 4 million downloads. The service offers an app developer account, app listing, integration with the security system, and more. In Q3 RuStore opened access to private developers and expanded its features, adding app categories, reviews and ratings, in-app purchases, and promotion tools. By the end of the year the app store plans to add marketing tools and analytics.
VK has exited the O2O Holding joint venture in Q3. The respective deal was closed on September 29.
In Q3 VK recognized its share of loss in O2O Holding in amount of RUB (2,291mn) vs RUB (3,868mn) in Q3 2021. Due to sale of the entire stake in the O2O JV, VK recognized a revaluation gain in the amount of RUB 24,186mn;
This release presents Adjusted revenue, Adjusted EBITDA, Adjusted net profit/loss, which are non-IFRS financial measures
Adjusted measures for 2021 and 2022 also include contribution from discontinued operations (MY.GAMES). IFRS measures exclude contribution form MY.GAMES, according to the IFRS 5 requirement due to the disposal of the asset at the end of Q3 2022.
* Figures in the table above include contribution from discontinued operations (MY.GAMES)
For further information please contact:
VK IR team
VK PR team
Cautionary Statement regarding Forward Looking Statements and Disclaimers
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.
VK is one of the largest technology companies in Russia. Its products help millions of people with their day-to-day needs online. More than 90% of the Russian internet audience use VK services, which enable people to keep in touch, play video games, master new skills, listen to music, watch and create video content, buy and offer goods and services and fulfill wide range of other needs. The company provides a number of solutions for digitizing business processes, from online promotion and predictive analytics to corporate social networks, cloud services and enterprise automation.
Interim Condensed Consolidated Financial Results for Q3 and 9M 2022
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding.
(**) Please refer to “Presentation of Segment Financial Information“ for reconciliation of non-IFRS measures (Adj.revenue, Adj EBITDA and Adj. net income/(loss) to IFRS
In order to assess operational performance and allocate resources, the Chief Executive Officer of the Group, who is the Group’s Chief Operating Decision Maker (CODM), reviews selected items of each segment’s income statement, assuming 100% ownership in all of the Group’s key operating subsidiaries, based on management reporting.
In our effort to further enhance our reporting quality and transparency, the Group’s aggregate segment financial information previously presented in the form of management (CODM) accounts has been transformed starting from Q1 2022. In addition to IFRS-based disclosure, we have reported adjusted metrics, which are used in the management decision making process, with a clear transition between IFRS-based results and adjusted metrics to be provided, including within segmental disclosure.
Revenue in Segments Performance correspond with revenue according to IFRS. To supplement the financial information prepared and presented in accordance with IFRS, we have presented the following non-IFRS financial measures: Adjusted revenue, Adjusted EBITDA, Adjusted Net profit.
The composition of the reporting segments reflects the Group’s strategy, the way the business is managed and units’ interconnection within its eco-system. The Group has identified the following reportable segments on this basis:
The Communications and Social segment includes email, instant messaging, News and Dzen.Platform (hereinafter - ‘Dzen.Platform’; News and Dzen.Platform are being consolidated from September 2022), recommendation platforms (Pulse and Relap), as well as portal (main page and media projects). It earns substantially all revenues from display and context advertising. This segment also aggregates the Group’s social network Vkontakte and two other social networks (OK and My World) and earns revenues from (i) commission from application developers based on the respective applications’ revenue, (ii) user payments for virtual gifts, stickers and music subscriptions and (iii) online advertising, including display and context advertising. It also includes Search and music services. These businesses have similar nature and economic characteristics as they are represented by social networks and online communications, common type of customers for their products and services and are regulated under a similar regulatory environment.
The Games segment contains online gaming services, including MMO, social and mobile games, games streaming and platform solutions operated by the Group under the MY.GAMES brand and within the MY.GAMES ecosystem. It earns substantially all revenues from (i) sale of virtual in-game items to users (f2p) or sale of digital copies of the games (b2p), (ii) royalties for games and gaming solutions licensed to third party online game operators (iii) in-game advertising and (iv) revenues from streaming services and gaming platform services. The Games segment is presented as a discontinued operation as of September 30, 2022
The EdTech segment includes the Group’s online education platforms with educational courses and programs (such as GeekBrains, Skillbox and Skillfactory) and earns substantially all revenue from individuals for education technology services.
The New initiatives reportable segment represents separate operating segments aggregated in one reportable segment for their similar nature of newly acquired or newly launched and dynamically developing businesses. This segment primarily consists of VK Clips with potential to become a major separate product, B2B new projects including cloud along with other services, as well as of Youla classifieds that earns substantially all revenues from advertising, listing fees and other services that are considered insignificant by the CODM for the purposes of a performance review.
Since Q1 2022 the Group has changed its approach to allocation of corporate services expenses. The Group has analyzed the functionality of key services and defined appropriate drivers to allocate expenses of each service. Previously the Group applied a single driver in allocation of all corporate services expenses, based on the share of each segment in direct costs.
Non-allocated items - Allocations exclude services that are mostly related to general group issues, as well as expenses that cannot be tied to a particular BU, such as PR, Investor Relations, Government Relations, and other services.
Operating Segments Performance – Q3 2022
Operating Segments Performance – Q3 2021
Operating Segments Performance – 9M 2022