VK shares have been falling for a year and a half, but have almost doubled in two days: what’s going on

What’s happened

Shares of VK (formerly Mail.ru Group) rose by 88.9% in two days of trading. On Tuesday, March 29, they rose by 72% to 510 rubles. The exchange had to switch trades to discrete auction mode twice – this mode is enabled when the company’s paper rises or falls by 20% or more. On Wednesday, March 30, VK again became one of the leaders in growth – in the course of the day receipts rose by 37.2%, almost to 700 rubles, as a result, a discrete auction was launched again. Subsequently, the price of securities was adjusted – following the results of trading VK added 9.7%.

Why VK is growing

Analysts link the rise in the price of VK shares with two factors: one of them is purely technical, the other is related to the new realities of the business sector in which the IT holding operates.

Technical factors are related to the closure of short positions by investors, according to the head of the directorate for work with shares of Alfa-Capital Eduard Kharin. Capital Lab partner Evgeny Shatov agrees with him. “Probably the main reason for the growth of VK shares was the elimination of short positions by large investors. The fact is that it was predicted that VK shares would be excluded from the next rebalancing of the MSCI Russia index. Many players simply did not have time to eliminate short positions at the end of February, “Shatov said.

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Short positions are opened by a trader who expects the asset price to fall and wants to make money on it. To do this, he borrows the paper from the broker and sells it, and then buys it again (in the same amount as he sold – this is called closing a short position) and returns it to the broker. If the price has dropped, then the difference between buying securities and selling is the trader’s profit.

The second factor of growth was the redistribution of user audience. After the start of a “special operation” * in Ukraine, Roskomnadzor first blocked Facebook due to the social network’s refusal to lift restrictions on Russian state media accounts. Instagram was then blocked after users were allowed to post posts calling for violence against the Russian military. As a result, on March 21, the parent company Facebook, Instagram and WhatsApp – Meta – was recognized as an extremist organization and banned in Russia.

“Holding [VK] without a fight, the audience of his competitors, who were disconnected from our market. In the future, in addition to the Instagram audience, you can also get a WhatsApp audience. The Chinese market model, which has allowed such giants as Baidu, Tencent and Alibaba to grow, has begun to look quite feasible, ”said Leonid Delitsyn, an analyst at Finam.

Viktor Dima, director of Aton’s stock market analysis department, believes that the increase in the value of shares reflects both the influx of users and the possible increase in the monetization of the increased user base.

The influx of a large number of users allows us to expect growth in advertising revenues and a pronounced synergy effect between the company’s services, said Vasily Karpunin, head of the information and analytical content department of BCS Mir Investitsii.

Evgeny Shatov from Capital Lab also notes that the social network has launched a program to support content authors, according to which the expected total income of bloggers will be about 600 million rubles through affiliate programs, market platforms, monetization of videos and donors.

Why should I know that

Close up

VK owns the largest Russian social networks VKontakte and Odnoklassniki, the developer of My.Games games, as well as shares in the joint venture with Sber, O2O Holding, which includes food delivery services, Delivery Club, Kitchen in the area. “Scooter”, car-sharing service “City Drive”, etc.). Its securities have been traded on the Moscow Stock Exchange since July 2020 (before that the company was present on the London Stock Exchange, where trading in its securities is now suspended). The price of paper reached a maximum in September 2020 – more than 2,400 rubles. Since then, VK shares have started a long downward trend – by the end of February this year, they fell by almost 90% from the maximum.

Approximately 40% of the company’s revenue structure in 2021 was occupied by online advertising, more than a quarter – income from online games. According to the results of last year, the company’s revenue grew by 18.2% to 125.75 billion rubles (compared to 2020, the growth rate slowed down). The net loss, taking into account the results of associates and joint ventures, amounted to 6.5 billion rubles.

In October last year, the company rebranded – changed its name from Mail.Ru Group to VK, which, according to management, was to emphasize the central position of the social network “VKontakte” in the company’s ecosystem. Shortly afterwards, VK’s shareholders and management changed. Alisher Usmanov’s USM holding completely withdrew from the asset, selling its stake to Sogaz, and another major shareholder, Gazprombank, transferred its stake to Gazprom-Media. Vladimir Kirienko, Rostelecom’s vice president, has taken over as the company’s CEO instead of Boris Dobrodeev, who has headed it since 2016. At the same time, the downward trend in VK shares continued – in the IV quarter of 2021 they fell by about 40%.

Eduard Harin from Alfa Capital believes that it is difficult to assess whether the recent growth of VK shares is sustainable. “There are many driving factors, such as the company’s market strategy, the actions of foreign platforms, as well as the premium for the risk of investing in these assets. The latter is especially important, because in fact only local investors remain on the market, and the required rate of return on capital for them is higher, which, accordingly, suggests that the assessment of companies on their part may be lower, “he said.

Vasily Karpunin from BCS believes that the high demand for VK securities will remain in the medium term. “At the same time, local drawdowns in the current extreme volatility may occur, but will be short-lived. For longer-term forecasts, it is necessary to wait for a full-fledged strategy from the new management, “says Karpunin.

To the investor

Victor Dima from “Aton” points out that the decline in the value of VK shares, observed earlier, made the securities attractive for investment. He believes that VK shares are now interesting as a long-term investment with a horizon of more than a year. The cost of receipts will fluctuate significantly, warns Leonid Delitsyn from Finam. “An investor who is confident of future geopolitical risks reduction has already made a unique profit from VK’s underestimation. An investor who is morally ready for any outcome can safely gamble with geopolitics – there is a good chance to win, “Delitsyn sums up.

* According to the request of Roskomnadzor, when preparing materials on a special operation in eastern Ukraine, all Russian media are obliged to use information only from official sources of the Russian Federation. We cannot publish materials in which the operation is called an “attack”, “invasion” or “declaration of war”, if it is not a direct quote (Article 53 of the Federal Law on the Media). In case of violation of the requirement from the media, a fine of 5 million rubles may be imposed, and the publication may be blocked.

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