FOCUS: Gaming business sale to benefit VK after foreign markets close

MOSCOW, Oct 10 (PRIME) – Russian Internet company VK has sold its gaming division for almost half of its current capitalization, which analysts said was a wise move since the business earned money mainly on the foreign market, which is now out of reach.

“I think the decision is reasonable and stems from the new situation in which the company’s business has found itself. The majority of games consumers are foreigners, and monetization via App Store and Google Play is paused,” Vasily Karpunin, an analyst at BCS Express, said in a note.

“This is why the business’s margin collapsed in January–June. Its development in the previous form raised many questions in terms of worthwhileness. Now, the division is sold and the company has received 40% of its capitalization on its books.”

VK said on September 27 that it had completed a multi-stage selection procedure of a buyer of its gaming division with the sale of 100% of MY.GAMES, including its studios and products, to Alexander Chachava, a managing partner of LETA Capital, for U.S. $642 million. MY.GAMES’ co-founder Vladimir Nikolsky will leave VK to continue to develop the division.

Investment company Sberbank CIB calculated that the deal accounted for about half of VK’s current capitalization.

“We cannot speak about adequacy of the gaming division fair valuation in the current environment on the stock market,” Stanislav Yudin, a senior stock market analyst at investment company ITI Capital, told PRIME.

“Besides, blocking of payments and the Russian origin of the gaming segment – where the lion’s share of revenue, more than two thirds, is earned abroad – made it more difficult.”

Sberbank CIB said that the gaming division generated 35% of VK’s total revenue and 38% of its EBITDA in 2021.

“About 75% of MY.GAMES’ revenue were generated outside Russia and the CIS, mainly in the U.S., Germany and France. VK was reported earlier this year to be looking for a partner for its gaming division because of operating problems that it faced amid the sanctions,” the analysts said in a note.

Yudin said that adjusted revenue of the gaming segment shrank by 6% on the year to 20.7 billion rubles in January–June. The segment accounted for 43.5% of the company’s total adjusted revenue.

“Adjusted EBITDA of the games sector fell to 773 million rubles from 5.1 billion rubles a year earlier. A stronger ruble and the lack of new releases depressed global revenue denominated in a foreign currency,” he told PRIME.

But VK has not retreated entirely from the gaming business with the sale of MY.GAMES and said it will continue to develop its own gaming services under the VK Play brand, a platform launched in April.

In late September, VK confirmed deletion of several applications from App Store, while all the earlier installed services continue to function.

On October 4, VK said that VK Play finished beta testing and released an update in seven languages. The company said it will improve the terms of work for developers and expand functions for the users.

(61.2475 rubles – U.S. $1)

10.10.2022
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