Mail.ru Group [MAILRq.L]

Mail.ru Group [MAILRq.L]

Structure Structure Industry Macro Company business structure/earnings drivers Peers Valuation

Internet penetration should to converge to Europe Broadband penetration in Europe, Russia and other selected economies Internet penetration in developed countries Russian internet penetration (monthly) Share of daily users in monthly internet user base Sources: Public Opinion Foundation, AC&M Consulting, IMF, ITU, Goldman Sachs Research estimates

Trends suggest that Russia is on course to become the largest European market With a 142 mn population, even today s low penetration gives Russia the second-largest internet user base in Europe. We believe this is likely to be the largest by 2013, if not before. Main destinations in Russian internet in 2008 (inside circle) and 2010E (outside circle) Source: TNS Gallup, Alexa.com, Goldman Sachs Research estimates Increasing time is being spent on social networks Russian language and first-mover advantage gives many Russian sites an advantage versus global peers. This is similar to China and is particularly relevant in businesses where networks are important, such as SNS and messaging

Russian internet advertising market is set to grow -We forecast Russian internet advertising market will grow with 35% 2010-15E CAGR -The main drivers will be nominal GDP growth, higher advertising penetration to GDP (82 bps in 2015E vs 55 bps in 2010) and higher share of internet in total advertising budgets (19.4% in 2015 vs 10.8% in 2010) Russian advertising spend and advertising as a share of GDP Internet ad spend, internet as a share of total ad spend

From investor to integrated business; NI a better guide to relative contributions Evolution of Mail.ru Group holdings Revenue by business (2009, end 2010 group structure) Net income by business, (ex-hq costs, 2009, end 2010 group structure) Source: Company data

Note: Standard P&L structure Note: Standard P&L structure

Internet remains predominantly local in Russia, and Mail.ru has a strong position The most popular websites, by country Mail.ru Group is exposed to the most popular activities in internet Sources: Alexa.com, TNS Gallup, Liveinternet.ru, comscore, J son & Partners, Goldman Sachs Research estimates.

Monetization through advertising and IVAS across key assets Revenue sources for main sites Revenue structure (2009 pro-forma, end-2010 group structure): IVAS: 54% Online ads: 38% Other: 8% Sources: Company data, Goldman Sachs Research estimates

Drivers of internet advertising market Advertising spend p.c. (y-axis) vs GDP p.c. (x-axis), US$ Ad spend as a share of GDP (y-axis) vs GDP p.c. (x-axis, US$) Advertising spending in Europe, split by media Internet as a share of ad budget vs broadband penetration

IVAS: Other ways of audience monetization, following Asian examples IVAS contribution to revenues of Mail.ru Group in 2007 (inner circle) and 2009 (outer circle) Contribution of IVAS to Tencent revenues Number of paying MMO games players in Russia Share of paying subscribers in total number of active users Sources: Mail.ru Group, Tencent Holding, J son & Partners

In a global context Mail.ru is one of the fastest growing internet companies In a global context Mail.ru is one of the fastest growing internet companies EBITDA CAGR for Mail.ru Group vs. peers, 2009-12E Net income CAGR for Mail.ru Group vs. peers, 2009-12E 2011E EV/EBITDA vs. 2009-12E EBITDA CAGR for global internet companies 2011E P/E vs. 2009-12E earnings CAGR for global internet companies Sources: Company data, FactSet, Goldman Sachs Research estimates

Valuation methodology: Internet Valuation methodology: Internet We value CEEMEA internet stocks based on target PEG (PE 12/EPS CAGR 12-15) ratio Global internet stocks trade on median PEG multiple of 1.0x, we apply it to Mail.ru We value Mail.ru Group on 25x 2012E earnings Global internet stocks trade at 1.0x PEG on average

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