Mail.ru Group's (MLRUY) CEO Boris Dobrodeev on Q4 2020 Results - Earnings Call Transcript

Mail.ru Group Limited (OTCPK:MLRUY) Q4 2020 Earnings Conference Call March 4, 2021 8:00 AM ET

Company Participants

Tatiana Volochkovich – Director-Investor Relations

Boris Dobrodeev – Chief Executive Officer

Fedor Rubtsov – Chief Financial Officer

Matthew Hammond – Managing Director and Chief Financial Officer

Conference Call Participants

Cesar Tiron – Bank of America

Vyacheslav Degtyarev – Goldman Sachs

Kirill Panarin – Renaissance Capital

Ildar Davletshin – Wood & Company

Miriam Adisa – Morgan Stanley

Vladimir Bespalov – VTB Capital

Svetlana Sukhanova – Sberbank

Anna Kupriyanova – Gazprombank

Maria Sukhanova – BCS

Anna Kurbatova – Alfa-Bank

Ulyana Lenvalskaya – UBS

Vladimir Bespalov – VTB Capital

Tatiana Volochkovich

Thank you all, and welcome to Mail.ru Group Fourth Quarter and Full Year 2020 Audited Financial Results Conference Call. I’m joined by Boris Dobrodeev, Matthew Hammond, Fedor Rubtsov, Vladimir Gabrielyan and Vladimir Nikolsky. Remote work regime continues with Mail.ru Group, hence, we apologize in advance as coordination during Q&A may cause some minor delays on our responses as we are all in different locations. [Operator Instructions] Before I pass it on to Matthew, I will read the safe harbor statement.

Please note that our results press release contains statements of expectations and other forward-looking statements regarding future events or future financial performance of the group. The forward-looking statements in the 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. Many factors could cause actual results to differ materially from those discussed in the forward-looking statements, including those referenced on the risk factors in the group’s earning filings. We would like to direct you to read the forward-looking disclaimer at the back of our release, particularly with respect to possible differences between management and IFRS accounts. Matthew, please go ahead.

Matthew Hammond

Thank you very much. Good afternoon, and thank you all for joining us. I’m going to make a number of comments about the business and the outlook, and then we’ll give as much time as we can to Q&A. 2020 has provided all of us with a number of challenges. However, we’re very proud to report that this did not stop us from scaling our business, both in terms of revenues and products, while also strengthening our ecosystem.

In 2020, our group has grown more than 21%, with revenues exceeding RUB107 billion. This is above the loss guidance of up to RUB103 billion and even exceeds the 18% to 20% revenue growth target of RUB103 billion to RUB105 billion that we set for 2020 ahead of the pandemic. The diversification of our business and the commitment to our strategy were the main drivers of this result. We finished the year amongst the top five players in EMEA in terms of mobile monetization and amongst the top 20 mobile games publishers across Europe, according to App Annie. We maintained our leadership in the competitive social networking space and a gaining leadership across the very promising online education segment.

Additionally, we have made strong progress in our ecosystem development strategy announced last February, with, amongst others, the rollout of VK Connect unified ID and VK Combo loyalty program, enhancement of capabilities of our virtual voice assistant and VK Pay virtual wallet. The completion of multiple major cross integrations including between Youla, Marusia, Delivery Club and Citymobil with VK directly and rather rapidly scaling mini apps platform. I’ll now provide you with a few key highlights. First of all, on advertising. Despite the adverse advertising market backdrop, our ad revenue continued to grow throughout 2020, up 10.2% in the fourth quarter, including nearly 40% growth for SMB advertisers and above 30% growth for business formats.

Our advertising business delivered 5.3% growth for the full year 2020, while the Russian as well as global online ad spend stayed largely flat. We’ve outperformed the broader digital ad market consistently for the prior five years, and the currently available data points suggest that 2020 was not an exception.

Entertainment, FMCG, health and medicine as well as media have been amongst the best-performing verticals, while real estate, beauty and travel were amongst the relative laggards, albeit with some quarter-on-quarter improvement across the vast majority of verticals and ad pricing improving with eCPM growth accelerating to double digits year-over-year in the fourth quarter.

Consumer and advertising innovation remains our top priority, with continued focus on further improvements and measurements and performance formats and penetrations into SMEs, which will help us drive further outperformance of advertising revenue growth versus the broader market in 2021.

Second, on VK. VK remains the key pillar behind our strong advertising performance, with VK revenues growing 17.2% year-over-year in the fourth quarter. Despite the pandemic and its largely advertising-driven business model, VK grew revenues by nearly 15% in full year 2020 to over RUB25 billion. VK’s monthly user growth significantly exceeded that of the overall Russian Internet market in 2020, with monthly active users of 73.4 million, up 4.5% year-over-year.

On average, users visit VK 15 days a month with mobile time spent at around nearly 37 minutes per day as of December, a 60 minutes in the 12 to 24-age group. And we anticipate these to grow further as our new products in areas like mini apps, short video and social commerce gained further traction. VK saw rapid growth in the number of mini apps and their audience. VK Taxi showed the platform’s potential with over two million people having used the service in 2020.

VK Food app, updated in July, already account for over 10% of new customers of Delivery Club. The mini app audience is expected to further expand as mini apps get across integration within the group with OK integration being the first major step in that direction. We note that there is barely any monetization of mini apps outside some new seed-based promotion. Clips launched in July already has daily users in excess of 16 million, means its audience is already larger than that of TikTok. The number of views per day reached a new peak of 230 million in December, and much of the engagement is incremental to the platform so far, with the initial monetization experiments ongoing.

Overall, we remain committed to not only maintaining VK’s leadership among social networks but also to continue to transform VK into the main super app in Russia and the center of our ecosystem. Despite the pandemic and the challenges that, that raised, VK remains on track to double revenues by the end of 2022 versus 2018 levels.

On Games. We are enthusiastic about the prospects of MY.GAMES as we believe the games industry is poised to continue to increase its share of media consumption globally with a growing player base, which is becoming increasingly mobile-first and increasingly free-to-play focus, with 76% of our games revenue coming from mobile and 98% from free-to-play games in the fourth quarter and MY.GAMES full year growth exceeding 30%, including 27% growth in Q4.

We continue to focus on development of our own IP, to expand our audience, and this includes entering new regions, with 77% of revenues coming from outside of Russia CIS in the fourth quarter. The working-from-home protocols, which have been in place with our company now for a year have no adverse impact on launches with five in-house mobile and two console releases in 2020. MY.GAMES continues to broaden its TAM through further diversification in terms of genres, including most recently within the hyper-casual games, and including through M&A with two studio consolidations and 12 new minority investments made by the games fund in 2020.

We would, however, note that the newly acquired and consolidated studios contributed only 9% of MY.GAMES revenues in 2020, with our growth being largely organic. War Robots remains our largest franchise game, with nearly RUB1 billion in monthly revenue in December. Love Sick and Grand Hotel Mania offered the potential to become our new franchise games, supporting Warface, War Robots and Hustle Castle. Looking ahead, we target further market share gains through the ongoing scale in the existing and the development of new franchise titles, along with the development of MY.GAMES Store, Cloud and M&A.

In terms of recent launches, Skyforge was be second title to be rolled out from Nintendo Switch platform in February of this year. The rollout plan for 2021 is expected to be somewhat less active than in 2020 but in line with the typical base case annual strategy of launching around four mobile titles as well as one or two across other platforms.

New initiatives, online education. Online education represented by the consolidated Skillbox and GeekBrains businesses remains the largest contributor to the new initiatives segment, with revenue growth of 56% quarter-on-quarter and up 3.1 times year-over-year in the fourth quarter. For 2020, AdTech generated RUB6.1 billion in revenues, exceeding the set target of RUB5 billion while also being profitable.

Skillbox and GeekBrains launched over 200 new courses and programs during the quarter and are in the process of being integrated into a unified business focused on professional education, albeit with two distinct brands to remain in place, given the different educational format offerings. Despite the expected post-COVID normalization, we anticipate further strong growth in excess of 30% from the consolidated AdTech assets in 2021.

Additionally, despite this growth and the investment, we expect the segment to remain profitable. Youla. Q4 revenues of Youla exceeded RUB1 billion for the first time, with year-over-year growth of 43%. Revenues reached RUB3 billion for the full year 2020, finishing at the top of the guidance range, with an EBITDA loss of RUB2.2 billion, which marked a sizable decline as a proportion of revenues versus the 2019 levels. Deeper integration with VK continues with the monthly launch of VK Classifieds which resulted in a more than 20% growth in monthly users to a new high of 33 million. Youla is expected to continue to gain market share with target revenue of RUB3.6 billion to RUB3.9 billion for the full year 2021.

At the same time, we will continue to focus on improvement of its profitability with a lower proportional loss in 2021 and an anticipated breakeven in 2022 of the new initiatives. Our B2B technology business exceeded RUB1 billion in quarterly revenues for the first time in Q4, with growth exceeding 200% year-over-year. Our cloud business approached RUB1 billion annual revenue, growing multiple times year-over-year. The number of people using both our recommendation platforms reached 62 million per month, up 47% year-over-year, with related revenues exceeding RUB200 million in the fourth quarter.

On margins. Investing in new businesses and use cases is vital for the sustainability of growth and the competitiveness of the technological companies where competition is global, and hence, we’ve been investing throughout 2020, especially with the notion that the pandemic would become a major tailwind for the pace of development of most of our verticals of presence. This investment continued throughout the year.

The biggest driver of the reduced margins came from MY.GAMES as we continued to invest in our portfolio, even during the peak Q4 season with a focus on retention of COVID-acquired users and the goal to benefit from still elevated demand, with partial lockdowns continuing across the globe. We also wanted to continue to invest in the recently consolidated Deus Craft studio as well as initial marketing of the Rush Royale mobile title, both of which are currently amongst our top revenue-generating games. Despite the nearly 50% decline in Games EBITDA in Q4, given our active investment, Games segment EBITDA grew 28% year-over-year in 2020, with the stabilization in profitability, a 15.4% margin in 2020 versus 15.7% a year ago.

Given the scale of our business and the already high mobile share of revenues, we expect 2021 to mark significant progress in profitability improvements in MY.GAMES, and we remain confident in reaching RUB10 billion in EBITDA for our Games business in 2022. Communication and social segment saw margin compressed below 41% in Q4. This is due to the continued investment in new products and services as well as advertising revenues being below the plan set at the beginning of the year, with VK Clips being amongst the major areas along with investments in social commerce and key ecosystem projects which we see as incremental for our future growth and market position. These investments allow us to remain in the lead of one of the most competitive segments of the global Internet market while also gaining advertising market share and progressing towards building an ecosystem and unlocking new major future monetization opportunities, which should be revenue as well as margin enhancing over time.

In terms of the joint ventures, our O2O JV. Delivery Club outperformed guidance for 2020, having grown revenues 2.3 times year-over-year to RUB10 billion. Q4 revenue growth was 2.1 times year-over-year with 2 times growth in orders from its now around 40,000 vendors. The share of own delivery orders stood at 59% as of December. Nonrestaurant orders are approaching 10% of total, with over 2,500 connected grocery stores as well as delivery of meal kits, nonprescription drugs, flowers, pet food and other items, with the majority of such orders done on the marketplace model. Delivery Club targets further solid growth in 2021 despite the very high base, but with also a focus on improvement in profitability with positive unit economics before headquarters costs delivered in February of this year.

Samokat grew revenues by 19 times year-over-year and orders by more than 12 times year-over-year in Q4, with up to 100,000 daily orders in December. For 2020, Samokat delivered 18 million orders and generated RUB9 billion in revenue, which means 15 times and 23 times respective growth. Samokat’s dark store base reached 400 in December versus 90 a year ago. It is expanding its private label base and is testing a larger dark store format with the plan to go for further market share gains in 2021 and annualized revenue at RUB20 billion as of December last year. Local Kitchen managed 45 dark kitchens across Moscow in December versus 29 in January of last year.

The service generated more than five million in orders and RUB2.6 billion in revenues, both growing more than 3 times year-over-year. The platform aims to broaden the Moscow presence as well as expand geographically in 2021, with annualized revenue of RUB3.9 billion as of the December run rate. Citymobil increased rides and GMV by 20% quarter-on-quarter in Q4, reaching 185 million rides and RUB46 billion in GMV in 2020, with 3 times year-over-year growth on both metrics and up to 30% market share in selected regions.

Citymobil continues to expand its C2C and B2C delivery, adding new partners and growing delivery rides by more than 75% quarter-over-quarter, also expanding with the premium and B2B areas. As part of the multimodal vision, Citymobil launched full consolidation with Youdrive with technological and operational integrations planned for 2021. Despite the COVID shock and unparalleled growth at scale, Citymobil has improved EBITDA burn as a proportion to gross revenue in 2020 and plans to significantly improve unit economics in 2021. AER. The platform continues to scale, with 29.1 million and 8.8 million daily users with a major focus on improvement of its level of customer service and value proposition.

The expansion of local marketplace remains amongst the major focus areas, with the number of local sellers rising 7 times in 2020 and exceeding 35,000 and now exceeding five million SKUs and local share of GMV now at around 25%. Combined, the cross-border and domestic businesses of AER are offering over 100 million SKUs from over 150,000 sellers. As of Q4, the share of AliExpress Plus GMV increased to 38%. I’m Sorry. I apologize I was having to deny a call there. The average delivery time of AER goods from China dropped by half to 15 days, and delivery time inside Russia improved to 4.5 days.

The network of available pickup points, including parcel lockers, has increased to 18,000 with own pickup service now also launched. In a new partnership deal with Russian Post, AER will gain access to 16 fulfillment centers with a total area of up to one million square meters, which allow 47% of Russian users to get next-day delivery.

Social commerce also continues to scale with over eight million people interacting with AER monthly through OK and VK. You should expect to get a more granular disclosure around AER starting in 2021, following the end of the financial year, which ends in March, and includes a Q&A session with the co-CEO of AER planned for the end of April. Payments and financial JV. Last month, we signed binding agreements to create a payments and financial services JV with partners, including Ant Group. The JV will work together to offer digital payment solutions and financial services designed to connect users and merchants that are specifically designed and value-added financial and payment products for both sides of the marketplace.

JV will serve to broaden VK content usage outside of VK and will be accessible for online as well as offline payments, both inside and outside our ecosystem. We will share further details of the closing during 2021. Guidance and outlook. We reiterate our commitment to invest into our business to help drive future growth and innovation. At the same time, some of the margin pressure points we’ve experienced last year were COVID-driven, which will not be in place in 2021, assuming further normalization.

Combined with the expected progress of Youla towards breakeven, we anticipate positive margin trends to games and new initiatives, especially in games driven by the economies of scale, completion of our transition to a largely mobile-driven business, further strength of our existing franchise title and potential for new franchises to come from our stories as well as time management games and slightly less active launch pipeline, we expect further improvements. Q1 is expected to mark the lowest point in profitability of Games in 2021, with improvement over the following quarters. Key ongoing areas of investment include Clips and other video products, social commerce, VK Connect, VK Combo, mini apps and music with communication and social segment to remain an area of ongoing investment, but with margins supported over time as the new products see monetization and ad revenues normalize.

On a group level, this should balance the result, and we should see an improvement in profitability in 2021. We know that this year we’ll face various different base effects for our businesses where Q1 presents a rather low base for Games, Games comps will get more challenging as the year progresses, the toughest being in the second quarter. At the same time, Q2 faces the easiest comps for advertising, which is our largest revenue stream and which should help drive growth of our group in 2021. While visibility still remains somewhat limited, current trends suggest that further quarter-over-quarter acceleration in ad growth in Q1 and Q2 2021 should be expected.

We are pleased with the start to Q1, with January and February ad growth of around 20%. AdTech comps will toughen as the year progresses being the easiest in first – in the first quarter. Notwithstanding this, we still expect to see 30% plus growth expected for the year. Overall, we’re aiming for 18% to 21% revenue growth in 2021 to between RUB127 billion and RUB130 billion, with improvement in EBITDA margins versus the 2020 level. Finally, transparency and corporate governance. We continue to evolve as a public company with corporate governance being amongst our major priorities. We’ve been more focused having disposed of Maps.Me.

As a non-core business, we’ve also been attempting to create global partnership around our eSports business, but this was challenged by the pandemic, which has hit eSports businesses globally. As a result, we have reconsolidated ESforce, which is no longer held as an asset held for sale. We will continue to evaluate options for this business going forward. Since the beginning of 2020, we’ve successfully completed our local listing, the liquidity of our GDRs rising by over 600%, and Mail Group admitting to the major MSCI indices in December. We’ve also introduced regular ESG reporting. Going forward, we’ll provide more granular segmental disclosure, including through the introduction of online education as a separate reporting segment starting from Q1.

Additionally, following extensive conversation with the analysts and investment community, we’ll no longer be reporting on a pro forma basis going forward. And as was promised last year, net income contributions from significant associates in JV will be reflected in the management accounts starting from Q1, with a granular breakdown between the related contributions. This will allow us to continue to narrow the differences between management and IFRS accounts.

With that, I thank you, I’d like to turn over to Q&A.

Question-and-Answer Session

Operator

Thank you, Matthew. [Operator Instructions] Our first question comes from Cesar Tiron from Bank of America. Please go ahead.

Cesar Tiron

Yes. Hi. Thanks for the call and thanks for allowing me to ask the question. So the question would be on the margin outlook. So thanks for providing a margin outlook with increasing margins for 2021. It’s been a long time since Mail margins have not increased. Should I actually see that as a kind of inflection point and potentially new desire from the company to actually drive margins up for a number of years going forward? Or does the comment just really include 2021 and it’s not for – more for the longer term? And if it’s possible, I have a second question as well.

Matthew Hammond

Cesar, it’s Matthew. Thanks for the question. Look, I mean the comment right now relates to 2021, obviously, because that’s the explicit guidance we’re giving. Margin, as you know, is largely a function of mix and timing. That said, we have invested in the business over the last few years. I think our expectation is that margins in 2020 are probably at or around the sort of low end of where we would expect. And over time, we are obviously committed to making the business as efficient as possible. So the explicit guidance of margins rising is obviously around 2021. And obviously, we’re going to see better ad growth than we saw in 2020. We were very clear, I think, that we continue to invest in the ecosystem, even when ads were running significantly below budget in sort of Q2 and Q3 and even Q4, which saw a recovery, but it’s still not back to what we would like.

Clearly, we’ve started the year well on ads. I think we’re very happy with that January and February number that we just gave you. And clearly, at the same time, we should move to profitability with Youla in 2022 and Games margin at 20% plus going forward. Clearly, if you put all of that together, it would suggest that we have more of a focus on overall margins going forward. And the ecosystem, obviously, should be margin enhancing. Put that all together, clearly, 2020 probably represents low, but I don’t want to make explicit commitments about 2022, 2023 at this point. You will understand it’s very early in the year, it’s – and we need to remain somewhat flexible. But I hope that answers the question.

Cesar Tiron

Yes. Thank you. Would you allow me for a very quick follow-up?

Matthew Hammond

Sure. Yes. We’re very happy to have as many questions. We just asked you ask one at a time, simply because it allows time.

Cesar Tiron

So the other question I had is if you deliver on the numbers that you just gave us and if within six months or a year, the stock is still underperforming peers or various indices in which it is listed, would you consider actions to possibly help the market see through the value of some of the assets that are in other areas? So for example, you have Youla, which I think in the past, you wanted to sell, and it’s probably not a 100% core asset. It’s a question. You have the JV as well, which probably is not reflected in the stock. I mean would that be a candidate for IPO in the long term? And there were also I think some press articles a couple of months ago on the Games business, saying that you might consider to IPO. And you answered that it’s not something that you can really comment on at the time. Yes, if you can actually help us understand if management would be keen to take any of these actions potentially to help crystallize some of this value. Thank you so much.

Matthew Hammond

Yes. So I think you’ve seen with the formations of JVs, we are very focused on shareholder value. We will always seek ways to create further value. Absolutely, no options are off the table. I would say that we continue to evaluate all of the divisions. And if there is an opportunity to create shareholder value through the separation of the division or through partners or through being somewhat imaginative with the structure, we are absolutely not opposed to it. So yes, I would say, absolutely nothing is off the table. And we take these decisions, obviously, for the best – we do the best thing that we can for the business to drive the maximum possible growth at the cheapest possible pricing to deliver the largest possible value to our shareholders. So yes, nothing is off the table.

Operator

Thank you. We will now move turn our next question from Vyacheslav Degtyarev from Goldman Sachs. Please go ahead.

Vyacheslav Degtyarev

Yes. Thank you very much for the call. Can you please elaborate if you see additional cash injection needs for the joint ventures in the medium term and where they can potentially go?

Boris Dobrodeev

Yes. Thank you for this question. I will take it. So I think AliExpress and Auto, both will need cash injections. And we are committed to fund both of the ventures because we see very good growth and progress in both of the companies. And we stay committed to funding them as shareholders. Of course, we will do it proportionately with other shareholders and over time.

Vyacheslav Degtyarev

Sure. And so my follow-up would be, if you can highlight the number of combo loyalty program subscribers or maybe dynamics there. And so what are the key product propositions that customers are buying in your combo subscription in your view?

Boris Dobrodeev

Yes. So we’ve got post the changes that we’ve made in – later in last year in Combo, we have significantly increased the pace of Combo adoption. So now we have about one million Combo-native subscribers, which is a quite big acceleration from what we had in previous quarters. And also what we are doing now is that we are merging Combo with VK Music subscription. So generally, you will have just one subscription for both Combo and VK Music, and it will be called VK Combo. So we are in the process of merging that. So, we think that post-merger, as of now, we will have about 3.5 million monthly paying subscribers. So, we see great use in this loyalty program. Of course, the heart of this program is music, but we actually are starting to see other like e-comm players to benefit from this. So generally, you see two effects. You see like, for example, for music, you see better conversion and retention rates and also for more transactional services, you see a much higher frequency in transactions for the transactional services. So generally, there is kind of a great synergetic reason to happen to be part of Combo. So we are quite happy with current developments, and we plan to continue to ramp this service up.

Operator

Thank you. We’ll now move to our next question from Kirill Panarin from Renaissance Capital. Please go ahead.

Kirill Panarin

Yes. Hi, everyone. Thanks for taking my questions. Two questions, please. First one on food delivery. Could you give more details around the key drivers of anticipated margin improvement at Delivery Club this year? In particular, if you could comment on trends you’ve seen in subsidies and the current level of monetization versus your main competitor? That would be useful. That’s the first question.

Boris Dobrodeev

Yes. Thank you. So generally, I think we’re having – working a lot of tailwinds across the board. So I think there are two key drivers. The first one is around subsidies. So we are starting to decrease the level of subsidies. Despite that, we still have very good growth and very healthy user numbers and transaction numbers. So this is number one. Number two, its efficiency in logistics operations, which are driven by two factors. The first one is the order density now seems to be significantly increased the scale of the business over last year. We see huge efficiency in courier dispatching.

And number two, of course, it’s technological enhancements through dispatching algorithms, which also help us to make the logistic operations more efficient. Also, you should bear in mind that we have a lot of kind of post-COVID tailwinds residing in the business. So one is it we see – we continue to see increased frequency in user monthly transactions and transactions per user, which, of course, decreased the marketing costs and then increase the revenue. And also, we have significantly increased, in 2020, the number of restaurants, which drives the overall like quality of the offering for the user and hence conversion. So generally, we see a lot of tailwinds for this business. I mean for the profitability part of the business.

Kirill Panarin

Yes. That’s clear. And my second question is on the margin decline in social. Could you outline which two or three of the new products required the largest investments last year? And could you talk about the monetization outlook for them versus further need to invest, whether it’s Clips or mini apps or anything else? And if possible, make a comment on the direction of margin development and social in 2021. That’s it.

Boris Dobrodeev

Yes. Yes. Thank you. So there were a lot of products launched last year. So I would name a couple of them. So one of them Clips among the major areas. So we managed to create like in quite a short amount of time a service that has like smaller amount of active users as TikTok in Russia. Obviously, it requires a separate team, and it just happens now that this product is inside the VK segment. But generally, it’s like a full-blown separate product, which would also very likely have a separate app in the future. So another one, it’s ecosystem product, which to a large degree, sit inside also in VK accounts. So it’s VK Mini Apps. It’s VK Connect. It’s now VK combo, which is starting to see it in VK as well.

So all of these ecosystem products, they’re also part of VK. And of course, social commerce is another one, part of SMB projects that we launched for small and medium sized businesses. And of course, to less degree, because they’re more like spread across different initiatives, but also, we had huge investments into video infrastructure, which were almost – which we have almost completed and which are already bringing a lot of fruit in terms of efficiency of our e-video platform as well as group video calls like big part of the – of this cost also sit in VK. But obviously, we believe that these products will bring fruits and bring its value in – like in the future. And of course, we will start to see a return on investments from these products to anticipate.

Kirill Panarin

Okay, great. Thank you very much.

Operator

Thank you. Ildar Davletshin from Wood & Company. Please go ahead. Your line is open.

Ildar Davletshin

Good afternoon. Thank you for the opportunity. So, I actually wanted to follow-up on exactly the last question from Kirill on social communication. So we’ve been observing that you were gaining market share in advertising. But at the same time, the margins have been declining. So from your comments, I understand that majority of this decline in margins comes from these new investments into the platform. But could you maybe also provide any color on any incentives or subsidies or other marketing kind of spending that you might have provided to SMEs, like to encourage them to use your advertising platform? Like in absolute terms or as a percentage of the margin, what could have been the impact for your decline in, say, 2020 relative to 2019? Or was it not really material? Was it all...

Boris Dobrodeev

We think that’s like the material were investments in the projects that we have discussed just before. I think these were the core investments and all the other for the P&L – on the P&L rise. All the other investments were not material for the VK P&L.

Ildar Davletshin

And then as a follow-up, so staying with the segment and looking into 2021, so do you expect the margins to broadly match 2020 level? Or is it going to also recover as in other segments? And maybe midterm, what would be the normal or the range of the margin that you could achieve in that segment?

Matthew Hammond

Yes. It’s Matthew here. As you know, we generally don’t give line-by-line margin guidance. And obviously, visibility on ads does remain somewhat limited. What I would say is ad recovery and improvement definitely helps margins. But this, in the very near term, will be balanced by further investments, especially into products like Clips and mini apps, as Boris said. So in the very near term, it’s – there are a lot of moving parts here. We’re focused on product development, and it’s not clear at this point what the speed of ad recovery will be and when we’ll see a total normalization there. So, I would say broadly, ads in the very – margins in the very near term for this division will broadly be around where they are. Over the longer term, clearly, we would expect them to rise as these investments pay dividends, but that will take a little bit of time.

Ildar Davletshin

Thank you.

Operator

Our next question comes from Miriam Adisa from Morgan Stanley. Please go ahead.

Miriam Adisa

Great. Thank you for taking my question. Firstly, just on VK Pay. I mean, could you just share anything more about the ambition there in terms of what you hope to achieve? Should we think about this really just as being wallet? Or are you also hoping to get into credit, other financial services? Anything you can share there would be helpful.

Boris Dobrodeev

Thank you, Miriam. So it’s definitely not just a wallet. So we – it’s a way to enter the fintech market in Russia. So now we’re entering it with a couple of products. So we have a wallet. We have just issued a virtual card with the cashback. So we are in the early innings of deferred payment type of products and checkout products. So I think our ambition is to create a fintech product, which would take a respectable market share and also, which would, on the other hand, promote Mail.ru Group ecosystem. So the current products that were launched, they are just in the – they’re just the start.

So at the same time, given that Russian fintech market is actually pretty competitive, it’s – I would say it’s more competitive than a lot of other markets with traditional players having actually much bigger exposure to the B2C and online B2C market. We start – we start with deferred payment products because I think this is just the best way to enter this competitive market. But in the future, obviously, we want to enhance the offering. So generally, we want these first products to serve as user acquisition tool, and then we’ll work on the broadening of the product line to kind of drive more monetization and more exposure into the market.

Miriam Adisa

Great. My follow-up question would be on the leverage in the business. Given what was said earlier about the need to inject more cash into the JVs, what’s your sort of attitude to raising more leverage for the company today? Do you think you may need to do that this year in order to fund some of these injections into AER and potentially O2O? And just broadly how we should think about how you’re managing the leverage in the business?

Boris Dobrodeev

So Fedor will answer it in more detail. Fedor, can you please answer?

Fedor Rubtsov

Yes. Thank you for the question. I think we have currently a pretty comfortable level of both cash and leverage. So we’re – while excluding lease liabilities, we are currently at about 0.3 times debt to LTM EBITDA. And we have a quite plenty of cash on hand. So at this point, we do not think our plan to further increase the leverage. And we think we have quite sufficient cash to fund any initiatives, including the strategic joint ventures. However, given that the level of leverage is actually pretty comfortable, if need be, we can also quite easily increase that, and we have a very large number of potential ways – potential instruments to do it. However, right now, we don’t consider increasing anymore in near to midterm.

Matthew Hammond

Miriam, it’s Matthew. I would say that – and we said this in the statement that we will evaluate all options to make sure that our financing is at the best available rate possible. We do have a credit rating now, and so local bonds are clearly an alternative to bank lines and potentially cheaper. But these are – this is about treasury management, not increasing the leverage ratios.

Operator

Thank you. And our next question comes from Vladimir Bespalov from VTB Capital. Please go ahead.

Vladimir Bespalov

Hello, congratulations on the numbers and thank you for taking my question. My first question will be on the – on your share of losses in JVs, as far as I can see for the full year, these were about RUB20 billion. But there was a huge spike in the fourth quarter of about RUB10 billion, which is half of the full year amount. So maybe you could elaborate a little bit what was behind this because this looks a bit counterintuitive from the business perspective? And maybe you could give the outlook for the losses of the JVs in 2021, given that you’ll start to show those in management accounts as well.

Matthew Hammond

Thank you. It’s Matthew here. The Q4, this is a technical noncash accounting treatment of the timing of the KPI-related payments for the O2O JV. As per disclosed today, they indicate to make that payment. But given we didn’t have visibility on the timing, we’ve taken the most conservative accounting treatment and hence the difference. If and when the payment is made, this adjustment would be reversed in the accounts.

Vladimir Bespalov

So that’s – this mean that you’re going to report some profits in 2021 on this payment, if it’s made?

Matthew Hammond

Well, if the payment is made, then obviously, yes, the charge that we took in Q4, which is obviously noncash, would then be reversed. Because it’s – as we say, we don’t have visibility on the timing, and hence, we’ve taken the most conservative accounting treatment.

Vladimir Bespalov

Yes. And apart from this, the outlook for joint ventures net losses in 2021?

Matthew Hammond

I think I hand over to Boris on that one.

Boris Dobrodeev

Yes. We generally anticipate increase in the efficiency in most businesses. So here, the outlook is broadly positive.

Vladimir Bespalov

Okay. And my second question is on the Games margins. Maybe you could provide some color on what is behind your expectation of such a significant increase in EBITDA profitability. Are you going still to invest a lot in new studios, maybe consolidation of some of these studies where you have minority stakes? Or you’re going to slow down this process and have the Games which you have in the portfolio reach the stage where you’ll see increased monetization and things like this? Could you maybe give more color?

Matthew Hammond

Yes. It’s Matthew. The first thing I’d say is, obviously, 2020 was a slightly unusual year. Usually, we would have peak margins in the fourth quarter, but we had much higher margins than people expected in Q2 and Q3 from Games. And we were clear with the Q3 results that we were going to remain somewhat flexible. We picked up a ton of new users during the COVID spikes and which – and we talked a lot about that. We weren’t clear initially about the sustainability of those users. I think we’re much happier now on what we’re seeing with those new cohorts.

And as such, we were prepared in the fourth quarter to invest and invest around them. Looking forward, as I said in the statement, the economies of scale, the completion of the transition to a largely mobile-driven business and further strengthening of the franchise titles, all of those combined in 2021 to see improvements in the margin and then further improvements in 2022. But at the same time, 2021 should revert in terms of the shape of the year to more what you have seen over the – over time. We would expect over time to be best-in-class of the mobile-focused games companies, and that means a 20% plus margin over time.

Vladimir Bespalov

Thank you very much.

Operator

Svetlana Sukhanova of Sberbank. Please go ahead. Your line is open.

Svetlana Sukhanova

Thank you very much for the opportunity. I have actually a series of brief questions. I would say follow-up questions. Can you help us to understand what the current level of cash at Auto during 2020? Because we do see cash burn and we do see that current assets are around RUB17 billion at Auto joint venture of December. Would it be fair to assume that cash at – pure cash at Auto joint venture was less than RUB10 billion at the end of December and might be even less now?

Fedor Rubtsov

Actually, we have given some numbers in the notes to our financials. Since the end of the year, we are currently in the process of finalizing the budget for the Auto. And I will say currently, the Auto venture has enough cash to continue in the near term. And subject to approving the budget, it will also be [Technical Difficulty]

Svetlana Sukhanova

But can you disclose exact cash amount at the end of this last year? Hello? Can you hear me?

Tatiana Volochkovich

Sorry, Svetlana. Fedor unfortunately dropped off.

Svetlana Sukhanova

Okay. So as – if you can...

Tatiana Volochkovich

Yes, we cannot comment on the exact cash balance. But as Boris mentioned, we’re committed to continue to fund our JVs if and when it’s needed.

Svetlana Sukhanova

Okay. Yes, it was also answered in the previous question. Okay. So now then my second very quick question would be, if I understand the answer to the previous question right, so you have about one million Combo-native subscribers, but do we understand that 3.5 million subscribers from VK Music was on top of that or it’s inclusive of Combo subscribers? So all in all, Combo plus VK Music, is it 4.5 million or 3.5 million?

Boris Dobrodeev

It is inclusive. It is inclusive.

Svetlana Sukhanova

So 3.5 million overall.

Boris Dobrodeev

Yes. This is included.

Svetlana Sukhanova

And my last short question would be regarding advertising growth. You announced you gave us very encouraging advertising growth for January and February. But do I understand it right that you are well ahead of Russian market and primarily because a part of your ad revenues is including gaming revenues, which are in hard currency? So that’s the first part of the question. Second part of the same question. Why – where do you think market is growing, Russian advertising – online advertising market growing in January and February?

Matthew Hammond

It’s Matthew. I would say the effect from game ads is relatively small, less than 10% of Games revenues come from ads. So the overall effect on our ad growth is pretty small. But even if you strip that out, we continue to outgrow the market. It’s difficult to make estimates at this point about what 2021 will look like. Obviously, we’ll wait for the usual AKAR numbers and other third parties. We would clearly expect a return to growth. But as I made the comment with what we’ve seen in January and February, we clearly think that we are performing materially ahead of the market again in 2021 as it stands right now.

Operator

And our next question comes from Anna Kupriyanova from Gazprombank.

Anna Kupriyanova

So my question will be regarding your e-commerce business and JV with Alibaba. Given this market is specifically competitive recently, how do you see future AliExpress development? If any plans for addition of new directions for local platform? Do you plan to develop logistics part of the business? Also, how do you see synergies with Auto in terms of e-commerce development, given that e-grocery is part of e-commerce business as well? So could you please provide us some more color on that?

Boris Dobrodeev

Thank you very much. Actually, we’re very encouraged by the way we see the growth in the local commerce of AliExpress Russia. So I think the market is indeed competitive. But within this competitive market, we see that AliExpress Russia managers to show its potential growth in the local commerce revenue. And it is important to bear in mind that it has some distinctive competitive advantages, which is their cross-border business, which is not – which is not present to a big extent within other big local commerce presence, which drives a huge user base of like 20 – close to 30 million annual transacting users, which is, I believe, the biggest transacting use base for Russian e-commerce players, which is hence converted into local commerce.

So, it is a huge driver for this business. So first, the business – I mean, I would not comment on specific product launches because I think it is up to AliExpress Russia management to do that. But you see this business rapidly evolving and launching new verticals. And we are very happy about that. Of course, as for synergies, all the synergies made on arm’s length basis. But I believe there are some calculations [ph] like delivering groceries, for example, between Delivery Club and AliExpress. And of course, we’ll be happy if more synergies like this happen.

Anna Kupriyanova

May I ask you how many of your ecosystem users use not just AliExpress e-commerce services, but some other like Mail.ru Group services, if you could provide such statistics? I mean, like, say, for Combo delivery....

Boris Dobrodeev

Sorry, I didn’t quite get the question. Sorry, I didn’t quite get the question. Will you please specify?

Anna Kupriyanova

So my question is regarding number of user for convergent services, specifically the part who uses e-commerce as well. I mean, not so e-commerce users for AliExpress but users who are also users of your ecosystem products. Do you have such specifics?

Boris Dobrodeev

I won’t give you the exact number, but there is a huge overlap between the audience because, both like Mail.ru Group and AliExpress Russia are huge federal players. So I assume the overlap is huge. So now we have eight million users who use social commerce on VK. And this eight million probably now can be considered as kind of synergetic user base between these two companies.

Anna Kupriyanova

And if I could a very quick follow-up. If you could cover JV for e-grocery part of Auto business?

Boris Dobrodeev

Unfortunately, we do not disclose – we do not strip out this metric at this time. But obviously, you can mention that last year it experienced very fast growth, but we cannot give you the exact number.

Tatiana Volochkovich

Anna, if I may moment, if you’re talking about Samokat, we disclosed revenues of Samokat which was...

Boris Dobrodeev

Okay. Okay. Sorry, I was – sorry, I was – yes, you can – I thought you were referring to the Delivery Club grocery segment. If you were referring to Samokat...

Anna Kupriyanova

But [indiscernible] – yes, I saw Samokat revenue, but I don’t know which part of delivery cost on G&A basis is coming from the grocery. So that’s okay. I understand. So I can do my...

Tatiana Volochkovich

Yes. No. But just to clarify, we disclosed revenues of Samokat on gross basis. So the difference between revenues and GMV is strictly in VET [ph]. So you can calculate GMV from the disclosed revenue numbers. And when it comes to Delivery Club, grocery orders account for less than 10% of total, but this is expected to grow significantly this year. And once it becomes scalable, we will, of course, provide more granular details. But right now, it’s marginal.

Anna Kupriyanova

Thank you, very much for the comments.

Operator

Maria Sukhanova from BCS. Please go ahead. Your line is open.

Maria Sukhanova

Yes. Yes. Good afternoon. I have a question on competitive landscape in social networks in Russia. So would it be fair to say that the only competitor, which is growing aggressively in new logistics talk, while, for instance, Instagram has reached some plateau. So I’m basing the statement on MediaScope data. So I wonder if that’s what you see. And also, if this is true, have you seen already any positive impact from launching Clips, like user retention or time spent, something like that?

Boris Dobrodeev

Yes. Thank you. I think if you look at the current MediaScope data, indeed, it looks like this is the picture. And this is one of the reasons. We also think that short form video, it’s a very promising format. This is why we invest and grow clips a lot. Indeed, we see kind of – well, we – I think we’re – still, despite the size of the service, we’re in the early innings. And we see small but marginal increase in the engagement from using the Clips on the VK platform.

Maria Sukhanova

And a quick follow-up on AliExpress, AER JV. If you could disclose GMV for 2020? And if you can’t, maybe could you tell us where you’re standing versus competition like we have a zone, which is around 200 billion libraries, which is around 400 billion. So maybe at least roughly where you stand versus the competition in absolute terms?

Boris Dobrodeev

We do not disclose the exact number, but we believe that we should be around between number two and number three player in the market, depending on how you go through the data.

Maria Sukhanova

Yes. Understood. Thank you very much.

Operator

Anna Kurbatova, Alfa-Bank. Please go ahead.

Anna Kurbatova

Good afternoon. Thank you very much. I would like to ask a question on your B2B technology and the cloud business lines because it was very interesting to know revenue and dynamics there. So first of all, you say that your cloud business approached RUB1 billion in the full year 2020. So it is comparable with what Yandex also said about their businesses in cloud. And I wonder what growth rates you are expecting for the – for this year in cloud. Well, Yandex provided 3 times growth outlook. Yes. So are you comparable or not in terms of cloud prospects here? And the second, on the B2B technology, maybe you would be able to give more color on the type of projects which are in all demand by your corporate clients? And what will drive growth this year and going forward?

Boris Dobrodeev

Thank you. So answering the first question, we continue to see similar, as you mentioned, similar-sized growth rate. We continue to see cloud grow extremely fast, and we’re very happy with this growth. So it reached RUB1 billion, as we state growing multiple times year-over-year, and we continue to see this growth. So as for B2B, there are like a couple of major products that we have inside. So one group of projects, it’s cloud. The second group of projects, it’s our database in memory database called [indiscernible], which we sell – which we sell to a lot of Russia’s biggest corporations, like a couple of biggest telcos in Russia, for example, use [indiscernible], couple of big Russian banks as well. So number three, these communication, different communication and the integration projects that we do so, for example, e-mail for business, HR solution for business, so we have a plethora of kind of more kind of – well, B2B2C type of solutions, which is used by Russian small, medium-sized and big corporations.

Anna Kurbatova

And in terms of the revenue recognition or contract type, are these projects, normally with your corporate clients normally contracted on the annual basis or the shorter time? Or do you have very good visibility for the future of this revenue?

Boris Dobrodeev

It’s very different. It is very different. So a part is like subscription-based and part is part is like a onetime fee plus support and one part is like license fee for the software. So we have like all the three components within this group.

Anna Kurbatova

Thank you. Very helpful. Thank you very much.

Operator

Ulyana Lenvalskaya, UBS. Please go ahead.

Ulyana Lenvalskaya

Hi, everyone. Could you please comment a bit on Uchi performance in December 2020? Has it like managed to achieve this RUB3 billion revenue for 2020? And does it grow faster or slower than your AdTech business?

Boris Dobrodeev

So it was close to RUB3 billion revenue for the entire year of 2020, and it continues to show solid growth in January from what we see. So we are very happy about this investment, also given that it is a profitable company.

Ulyana Lenvalskaya

And you still expect it to grow with 30% CAGR, right, in 2020, 2023?

Boris Dobrodeev

Yes.

Ulyana Lenvalskaya

Thank you.

Boris Dobrodeev

Thank you.

Operator

Vladimir Bespalov, VTB Capital. Please go ahead.

Vladimir Bespalov

Thank you for taking my follow up questions. The first one will be on your M&A pipeline, especially in games and technology. I – maybe you could comment are you going to acquire more assets? Or you are happy with what you have to develop your Games segment and AdTech platform organically? And do you see quite a lot of opportunities on the market, maybe M&A in some other areas as well?

Boris Dobrodeev

So we continue to be opportunistic. If we see a good opportunity that would bring value to shareholders, obviously, we would go for it. And if you look at the track record, most of the investments have paid off like the attack, which we started to buy a long time ago and – at a very like cheap price and some of the gaming projects such as Pixonic, which were both effectively, I think, for $30 million. So we think it is a very fruitful strategy, and we will continue to perceive it. I think for the Games – as for the Games, I don’t think that there is any distinct line between like do-it-yourself approach and M&A.

So, we kind of pursue like the 360-degree approach. So we built projects. So we do M&A sometimes as we buy a lot of projects at early stage, it can be a mix of M&A and building ourselves, for example, we can invest in seeders and actually help them to build the products we want. So it is a mix. I think if you look at what is going on in the gaming market, this is similar to what most of the gaming costs are doing. So generally, it’s a function of portfolio, portfolio management?

Vladimir Bespalov

Okay. And one more question, if I may. Last year, the government approved quite a lot of measures to support the IT industry. But at the moment, it was not clear how that would impact Mail.ru and some other companies. Maybe you have a better picture as we are in 2021. Maybe you could comment with many months being passed since the approval of those steps?

Matthew Hammond

Yes. Thank you. It’s Matthew here. It’s often difficult to have strong visibility on what’s going on the tax side. We continue to expect that the overall effect will be positive to us. But as it stands right now, there are a lot of steps that need to be taken on both sides in order to get there. And so visibility is very limited on that. We will update the market when we have some certainty. As ever with these things, tax both structuring and law is a complex thing. So it’s absolutely right that we get this 100% right. On balance, we expect it to be positive, but we don’t have hard guidance that we can give you at this point.

Vladimir Bespalov

Okay. Thank you very much.

Operator

Alexander Tarasov [indiscernible]. Please go ahead.

Unidentified Analyst

Thank you. I have questions and why [indiscernible]. We do not understand this situation. And why the developers from Citymobil is not have invented. Who do you think Citymobil [indiscernible].

Tatiana Volochkovich

Sorry, Tatiana here. Unfortunately, we cannot hear you very well. And it seems like it’s a landscape question. Maybe we can take it off-line as it seems it’s about City presence and so on. So just send us an e-mail to IR, and we will coordinate and have a call and discuss this offline as we cannot hear you. Operator, do we have any further questions?

Operator

No, there are currently no further questions in the queue.

Tatiana Volochkovich

Thank you all for joining us today. If you have any further questions, reach out to us at IR team. We will be happy to make any clarifications, which might be needed. Thank you again, and have a great day.

Operator

Thank you. This concludes today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.