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group tariff of RUB 269 per month (up to six people), according to Vedomosti. We note that these rates are broadly in line with other offerings on the market. Both Yandex (Yandex.Music) and Mail.ru (VK Music and Boom) have developed their own music services. However, we tend to see these services as ecosystem enhancements rather than standalone sources of value for both companies, at least at this stage. From this perspective the entrance of Spotify is neutral for both Yandex and Mail.ru, in our view, even though it will likely bring about more competitive pressures.
AliExpress Russia (AER), an ecommerce joint venture between Alibaba, MegaFon, Mail.ru and RDIF, plans to bring its GMV to about $10bn by 2022-23​, Reuters quotes the JV's co-CEO, Dmitry Sergeev, as saying. He also mentioned that the JV planned to bring the ratio of local merchants on its platform to 50%, from 20% at present. He did not rule out an AER IPO in three to four years from now. AER did not disclose its GMV, but we estimate that it stood at about RUB240-250bn in 2019. This makes AER the biggest ecommerce player in Russia, although the share of the domestic business on its platform is still relatively small. According to Data Insight, the local business generated almost RUB36bn of GMV in 2019, which implies that cross-border business might have exceeded RUB200bn, we think. Based on our estimates, AER accounted for 12-12.5% of the ecommerce market (both cross-border and domestic) in 2019. Meanwhile, Sergeev's statements imply that our estimated GMV might almost triple by 2022-23. That would bring AER's ecommerce market share to 16-18%, based on our market projections (although we note that these might differ from the JV's own assumptions). Sergeev's statements also imply that the domestic business, which is AER’s key focus at the moment, will notably outperform the cross-border one on in terms of growth rates. Overall, we believe that AER is well positioned to take advantage of the rapidly expanding ecommerce market in Russia. We note that, excluding the cross border segment, the ecommerce market stood at just 6% of the total retail turnover in 2020. In our view, Mail.ru, which holds a 15% economic interest in AER, is set to benefit from the growth of this JV, while the JV's potential IPO could help unlock its value for equity investors and current shareholders.
Mail.ru Group​ Group's 2Q20 results under management accounts featured strong growth, despite the pandemic-related pressures, ​and came in well above our and the consensus forecasts. Revenues rose 25.5% y/y to RUB25.4bn and were 10% above consensus and 8% above our forecast. EBITDA increased 4% y/y to RUB 7.5bn, 31% above consensus and 22% above our forecasts. The results and the underlying trends provide strong support to our positive view on the name. Our 12- month Target Price of $35 implies an ETR of 34%: Buy reiterated.
Despite the strong headwinds, advertising revenues declined just 5% y/y to RUB 8bn in 2Q20. This indicates that Mail.ru might have increased its share of digital ad revenues.
Games were the key driver, but we believe that the segment's performance exceeded both consensus and our expectations. MMO Games revenues increased 48% y/y to RUB10.1bn. This was the combined effect of the lockdown, new launches and the positive effect on international games revenues from the ruble depreciation. More importantly, the Games segment EBITDA margin increased to 21.4% in 2Q20 , from 6.6% in 1Q20. We expect that games will continue to be a strong driver for Mail.ru in the coming
94​ RUSSIA Country Report​ August 2020 ​ ​www.intellinews.com