K at the end of 2023 increased revenue by almost 40%, to 132.7 billion rubles

VK (MOEX: VKCO) at the end of 2023, increased revenue by almost 40%, to 132.7 billion rubles. One of the drivers of growth in the holding is advertising integration into content of its own production. But VK’s debt burden is growing even faster – by 41.8%, to 139 billion rubles. by the end of the year. Analysts note an increase in the debt-to-equity ratio, which “noticeably reduces the level of financial autonomy.” The holding promises to complete active investments this year.

Kommersant got acquainted with VK’s IFRS reporting for 2023. The company’s annual revenue amounted to 132.7 billion rubles, an increase of 36%. The bulk of the revenue, 84.6 billion rubles, came from the segment of social platforms and media content (which includes VKontakte, Odnoklassniki, Zen and Novosti, as well as streaming services under the VK brand), followed by ecosystem services (mail and cloud Mail.ru, RuStore, VK Play).

VK calls revenue from online advertising the main source of growth for the year, separately noting that revenue from advertising integrations into its own and partner content increased two and a half times. The holding clarified to Kommersant that only since September 2023, when VK Video launched a separate application, the volume of native integrations amounted to more than 1 billion rubles.

At the same time, the company’s net loss increased 8.7 times, to 34 billion rubles. in 2023. Adjusted EBITDA for the entire group amounted to RUB 0.5 billion.

The fact is that VK actively increased expenses. Thus, the amount of agency fees and expenses on media content in 2023 increased by 69%, to 40.6 billion rubles. In general, during 2023, VK spent 13.1 billion rubles on increasing intangible assets (software development, creation and acquisition of content), of which 2.1 billion was spent specifically on video content. In 2022, it was about 7.5 billion rubles, expenses for video content were not specified.

VK’s costs for video content are “significant, they are comparable to the costs of online cinemas for the production of their own films and TV series,” Dmitry Kolesov, director of the department of new technologies at J`son & Partners Consulting, noted to Kommersant. According to him, the company is strengthening the attractiveness of the UGC services “VK Video” and “VK Clips”: “And if user-generated content is influenced by rapid changes in trends, then professional content can attract an audience for several years.” VK received control of Vyacheslav Dusmukhametov’s company Medium Quality, which produces popular shows at the end of 2022.

Active investments led to an increase in the company’s debt load. VK’s net debt excluding leasing increased over the year from RUB 85 billion. up to 139 billion rubles, noted Kirill Panarin, head of the consumer and TMT sector analytics department at Renaissance Capital. VK confirmed that the company is “in an active investment phase.” But, the holding clarified, it is planned to be completed in 2024: “After this, the company intends to increase EBITDA and cash flow growth, which will provide additional resources to reduce the debt burden.”

Meanwhile, the report, as for the results of 2023, contains a disclaimer about significant uncertainty in connection with the debt load.

By the end of the year, the debt-to-equity ratio was 1.91, and in the event of a working capital shortfall, “the projected cash flow from operations for 2024 will not cover the shortfall.” Over the year, the debt/equity ratio increased by 76 percentage points, “formally, this significantly reduces the level of financial autonomy,” emphasizes Anna Avakimyan, chief analyst at RegBlock. “But given VK’s unique position in the market and development prospects, the growth looks temporary and technical,” says Ms. Avakimyan. In 2024, according to her estimates, part of the debt load “can be absorbed through revenue growth and revaluation.”

Yuri Litvinenko