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the name (TP $59, +1% ETR),” VTB Capital (VTBC) said in a note. Luxoft 3Q19 revenue declined 3% y/y to $230mn and came in 2% below the consensus, but at the lower end of its guidance ($230-235mn). The main trends across verticals were in line with management’s earlier comments. Financial Services accounted for 50.5% of revenue in the quarter, which implies a 16% y/y revenue drop of this vertical vs. a 3% y/y decrease in the previous quarter. Automotive revenue growth accelerated to 56% y/y in the reported quarter vs. 26% in the previous quarter, while Digital Enterprise showed a negative y/y trend but continued to grow Q/q (+8% Q/q), based on our calculations. The share of the largest two accounts decreased 24.9% in 3Q19 vs. 30.2% in 2Q19 and 34.4% in 3Q18. This implies that their revenue fell 30% y/y in the reported quarter vs. a 15% y/y drop in the previous quarter. “Excluding the largest two accounts, Luxoft revenue growth improved to 11% y/y vs. 8% y/y in the previous quarter, we think primarily due to strong dynamic from the Automotive Vertical,” VTBC added. Financial Service revenue excluding the largest two accounts was up only 4% y/y in 3Q19 vs. +16% the previous quarter. Luxoft’s adjusted EBITDA margin was down to 14.1% in 3Q19 and came in at the lower end of the management guidance (14-15%). Thus, adjusted EBITDA decreased 19% y/y, and was 5% below consensus. The company reported non-GAAP diluted EPS of $0.61 (vs. $0.62-0.69 guided) and GAAP diluted EPS of $0.32 (vs. $0.29-0.37 guided).
Google cuts a deal with Roskomnadzor. Google has reportedly agreed to share search results for websites banned in Russia with Roskomnadzor, signaling a willingness to share data to aid Russian legal authorities. Google's decision is likely to set a precedent for future negotiations with major western tech firms in Russia. Roskomnadzor itself admits it cares more about receiving a list of sites that fall under its ban regulations every day from Google than Google's actual formal registration within its database. The desire to maintain market access and share in Russia and Eurasia likely necessitated Google's compliance, but shareholders and employees wouldn't back anything handing Moscow all it wants. Expect more tug-of-war as attempts to regulate Runet continue to evolve.
· Google's willingness to work with restrictive states isn't totally, given its plans last year to build out a censored search engine in China. But after reportedly ending that project, Google has learned its lesson with the public and can't sign on fully to something similar in Russia.
· Apple has recently admitted to storing Russian users' data on local servers, thus making it accessible to security authorities in the country.
· Google is not formally part of Roskomnadzor's automatic registry— Yandex, for example, is—but reportedly decides on a daily basis which sites conform to the law as it understands, and then sends the links along to Roskomnadzor.
Belarusian software engineer EPAM was downgrade to Sell by VTB Capital (VTBC), despite its strong performance and outlook, the bank said in a note on February 18. “EPAM’s financial performance and outlook remain strong, as confirmed by the company’s 4Q18 results and 2019 guidance. However, the recent appreciation of the stock has brought the share price to levels that we view as unwarranted even by these strong fundamentals,” said Vladimir Bespalov of VBTC. “In particular, we see the 2019F P/S multiple of 3.9x and P/E of 30.5x (on a non-GAAP basis) implied by the guidance, as demanding. Even though our 2019 forecasts are slightly higher than the
122 RUSSIA Country Report March 2019 www.intellinews.com