VK Company Limited audited IFRS results for Q4 and 2022

VK Company Limited audited IFRS results for Q4 and 2022

March 16, 2023. VK Company Limited (LSE, MOEX: VKCO, hereinafter referred to as “VK” or “the Company”) releases audited IFRS results and segment financial information for Q4 and 12 months of 2022.

KEY VK HIGHLIGHTS FOR FY 2022:

• VK revenue grew by 19% to RUB 97.8 bn in 2022. Revenue growth was driven by 29% growth in online advertising sales in comparison with 2021. The main growth drivers of advertising were:
  • performance formats with 59% YoY growth;
  • the SME segment with a 2.1x YoY growth.
• Adjusted EBITDA rose by 8,9% YoY to RUB 20.0 bn in 2022 with an EBITDA margin of 20.4%. This was due to the growth in profitability of the “EdTech” and “VK Tech” segments – by 15 p.p. and 17 p.p. YoY, respectively.
• Total comprehensive loss in 2022 fell by RUB 12.4 bn YoY from RUB 15.3 bn in 2021 to RUB 2.9 bn, in part due to restructuring and optimization of the Group's assets.
• As of the end of 2022, users of VK services accounted for over 90% of the total Russian Internet monthly audience*.
• VK continued to increase the audience of its platforms while also increasing user engagement:
  • In Q4 2022 the average DAU of all VK services reached a record of 73 mn users*;
  • In Q4 2022 time spent across VK services increased by 18% YoY, averaging 3.4 bn minutes per day*.

The growth of key audience indicators was ensured by the implementation of VK's updated strategy aimed at strengthening its leading position in the market of content focused entertainment and educational IT products and active development in the segments of innovative solutions for businesses.

* Source: Mediascope, Q4 2022, Russia 0+, age 12+, desktop and mobile devices

FINANCIAL RESULTS OF OPERATING SEGMENTS FOR 2022

Segment performance for 2022

• Taking into account the substantial business transformation and in order to enhance the quality and transparency of the Group's financial reporting, VK has adjusted the provision of key segmental financial information in accordance with the current asset composition starting from Q4 2022 reporting.
• The “Communications & Social” segment has been renamed into “Social networks & content services” to reflect the increasing emphasis on media and content projects, launches of new internal business functions for media strategy and influencer activity, and the acquisition of Dzen. Given the similar nature of activities and business drivers, services such as VK Calls, VK Clips, and VK Video have been included in this segment. These projects were previously part of the “New Initiatives” segment.

• The revenue of VK's key “Social networks & content services” segment increased by 22% YoY in 2022 to RUB 75.1 bn, while its Q4 2022 revenue increased by 30% YoY. The segment's EBITDA margin in 2022 stood at 34%. The main drivers of growth were:

• The growth of the VKontakte social network, VK's biggest asset. Its average MAU in Russia in Q4 2022 increased by 9.6% YoY to a record 79.5 mn users, while DAU grew by 8.9% YoY to a record 51.1 mn users. The growth of the audience and its engagement led to a 29% increase in VKontakte's revenue in 2022. In Q4 2022 VKontakte's revenue grew by 31% YoY.
• The acquisition of the Dzen and News platforms in September 2022. The average MAU of Dzen’ newsfeed in 2022 was 70 mn, and the number of active creators doubled to 100,000 per week.

• “EdTech” segment revenue grew by 4% in 2022 to RUB 11 bn. At the end of December 2022, the number of registered students of VK’s education platforms rose by 28% YoY, reaching over 13 mn. Adjusted EBITDA was positive in 2022, reaching RUB 337 mn, while EBITDA margin rose by 15 p.p. YoY to 3%.
• Given VK's increasing emphasis on providing technologies for business and their growing revenue share, a number of B2B services developed internally under the VK Tech brand were moved from the “New Initiatives” to a standalone “VK Tech” segment.
• “VK Tech” was the fastest growing VK segment in 2022. Its revenue increased by 83% YoY to RUB 5.8 bn, with revenue more than doubling in Q4 2022 YoY. The segment's EBITDA margin increased by 17 p.p. YoY to 20% in 2022.
• “New business lines” segment is in the active investment phase. It includes such new products and services such as VK Play and RuStore.

SOCIAL NETWORKS & CONTENT SERVICES SEGMENT

Social networks & content services segment performance - Q4 & 2022

Main projects: VKontakte, Odnoklassniki, Dzen, Pulse, Portal, e-mail Mail.ru, VK Music, VK Clips, VK Video, VK Messenger

The revenue of the “Social networks & content services” segment in Q4 2022 increased by 30.3% YoY, reaching RUB 24.0 bn. The growth in online advertising income was the primary driver of revenue growth. Revenue increase VKontakte, in particular, reached 31% YoY. Revenue from the Dzen and News projects has been included in the segment revenue since their purchase in early September 2022.

Adjusted EBITDA lost 15% YoY and reached RUB 6.3 bn in Q4 2022, with a margin of 26% versus 40% in Q4 2021. EBITDA was impacted by major product launches and upgrades of existing services, accompanied with growth in hiring and marketing activities.

VKontakte

VKontakte continued to strengthen its leading position among Russian social networks: the average MAU in Q4 2022 grew by 9.6% YoY to a record of 79.5 mn users. The global average audience of VKontakte in Q4 2022 reached a record high of 101.7 mn monthly active users, while the average DAU in Russia grew by 8,9% compared to Q4 2021 to a record of 51.1 mn users. In Q4 2022, the average total time spent on VKontakte was 45.2 minutes per day*. VKontakte was reaching a record 86% of the Russian internet audience in December 2022, with 54% of users visiting the platform daily**.

One of the most exciting launches in Q4 of 2022 with an emphasis on audience engagement was the development of deepfake technology for UGC content, where neural networks can replace users' faces with celebrities' faces in VK Clips and VK Video with a single click. VKontakte also actively implements Web3 technologies. NFT transactions can now be carried out in the new VK NFT service without leaving the social network.

More than 6.3 bn units of content, including posts, clips, articles, videos, music, and other formats, were published on VKontakte in 2022. News feed views increased by 47% in Q4 2022 compared to Q4 2021, owing to improved recommendations and greater audience engagement. The number of approved friend requests increased by 31% YoY.

VKontakte is actively developing Communities: the total number of active creator public pages in December 2022 increased by 13% YoY and reached 2 mn. VKontakte continues to add new ways for communities and creators to monetize their content.

The number apps on the VK Mini Apps platform increased in Q4 2022 by 90% YoY to 75,380. The platform's MAU increased by 8% to 44.6 mn people in Q4 2022 compared to Q4 2021, and in-app ad revenue of mini apps increased by 95% over the same period.

The number of mobile games in the VKontakte catalog in Q4 2022 increased by 132% YoY, and revenue from in-game purchases on mobile devices increased by 91%.

* Source: Mediascope, Q4 2022, Russia 0+, age 12+, desktop and mobile devices; ** Source: Mediascope, December 2022, Russia 0+, age 12+, desktop and mobile devices.

Odnoklassniki (OK)

Average Russia MAU for OK stood at 36.6 mn in Q4 2022. Audiences demonstrated strong engagement in Q4 by sending more than 8.3 bn virtual gifts, 614 mn postcards and 543 mn stickers.

OK continues to expand its content services within the social network. OK relaunched its recommendation system with a focus on creator content. As a result, the time spent on the social network's feed increased by 28% YoY in Q4, while groups of bloggers and media got an increase in reach by 78% YoY. The reach of bloggers’ content increased by 1.5x YoY and the share of content made by communities in users' feeds grew from 31% to 46%.

OK was updated in September as part of the social network's new positioning, and launched a new service called Hobbies, which shows content about users’ particular interests and hobbies. More than 21.4 mn people per month watched Hobbies in Q4 2022.

Moments (vertical, full-screen photos and videos that disappear after 24 hours) average MAU reached 28 mn in Q4 2022 (+4.7% YoY). The number of views stood at 456 mn (+11% YoY).

Dzen

Dzen, a key multi-format platform for viewing and distributing content on a variety of subjects, joined VK on September 12, 2022. Every month, over 70 mn people read articles and posts, watch vertical and long videos in the Dzen newsfeed.

Dzen relaunched its mobile app in Q4, added a new way to sign in to the platform using VK ID, and also gave creators the option to transfer funds earned from platform monetization to bank cards and through the payment service VK Pay.

The platform's content will continue to grow with Pulse integrated into Dzen since March 2023. The merger is taking place under a single Dzen brand and its technology foundation, which includes a sophisticated recommendation system.

Furthermore, Dzen will serve as a unified entry point for all creators, providing simple tools for making, distributing, and monetizing content. Every week, over 100,000 active authors make content on the platform – their number doubled in 2022, and the number of topics increased fivefold.

Email Mail.ru

Mail.ru remains the largest email service in Russia. The product’s audience continues to grow, with DAU up by 5% YoY in Q4 to 18 mn people and average MAU up by 5% to 50 mn*. The service's revenue exceeded RUB 1 bn for the first time in Q4 2022, rising by 28% YoY.

VK Clips

Daily views of VK Clips reached 836 mn (+127% YoY) in Q4. The number of new Clips published rose by 346% YoY and the number of content creators increased by 133% YoY.

VK Video

VK Video average daily views (not including VK Clips) reached 1.96 bn in Q4 (+36% YoY).

The platform's library of professional content continues to grow: by the end of 2022, VK Video featured around 100,000 titles in films, TV shows and series from over 130 copyright owners.

*Source: Mediascope Cross Web, Q4 2022, Russia, age 12+, desktop and mobile devices;

In 2023, VK Video will continue to focus on attracting new users and developing the platform both within the VKontakte and Odnoklassniki social networks and as a standalone app.

VK Music

Average MAU for VK Music stood at 46.5 mn in Q4 2022. The service's subscriber base grew by 34% from September to December 2022. VK Records, a new business line, was launched in September 2022, which will create and manage its own music labels. Two live music venues were also opened in Q4 – VK STADIUM with a capacity of 7,000 people and VK Gipsy with a capacity of 2,500 people.

VK Messenger

The average MAU of VK Messenger in Q4 2022 grew by 3.7% to 66.2 mln users. VK Messenger was launched as a standalone app in May 2022 with the number of installations reaching 4.5 mn by the end of 2022.

New features have been added to Messenger – chats can now be organized into folders, and multiple profiles can be created within the same app. Users can now browse communities as channels, receive notifications from federal services portal Gosuslugi, and pay fines without commission. VK Messenger has significantly accelerated the service’s performance and the speed of video downloads, increased the maximum size of sent files to 4 GB, and introduced video messages with recording templates.

VK Calls

VKontakte introduced shared video content streaming in VK Calls in Q4 2022, with real-time reactions and no limit on the number of viewers. The service introduced animated vmoji, allowing VK Calls users to participate in meetings using personal avatars instead of live webcam videos.

EDTECH SEGMENT

EdTech segment performance – Q4 2022 & 2022

Main projects: Skillbox, GeekBrains, SkillFactory, Mentorama, Lerna, Sferum

The “Education” segment was renamed into “Educational Technologies” or “EdTech”. It combines VK's consolidated online learning platforms and educational technologies providing services to individuals and businesses.

In 2022, the segment achieved a sustained positive Adjusted EBITDA. In particular, EdTech delivered EBITDA of RUB 189 mn in Q4 2022 compared to RUB 719 mn in Q4 2021 with EBITDA margin of 6%.

At the end of December 2022 VK education platforms saw the number of combined cumulative registered students grow by 28% YoY to more than 13 mn, with 1.2 mn in new registrations during Q4 2022. Cumulative number of paying students reached 519,000 (+49% YoY), with 54,000 new paying students joining in Q4. The overall number of courses and programs at the end of December 2022 was 1,641. The average check in Q4 2022 reached RUB 67,000 (+11% YoY)*.

* Operating data covers only Skillbox Holding Limited companies.

VK TECH SEGMENT

VK Tech Segment Performance – Q4 2022 & 2022