The pitch is easy, but investors should not use Mail.ru’s planned London
listing as a back door into Facebook.
Most of Mail.ru is Russian. It runs the nation’s largest e-mail service, the
top two instant messenger networks and the second and third biggest social
networking sites (it has a 25 per cent stake in the biggest). But Yuri
Milner, its chairman, is also a popular figure in Silicon Valley: by paying
generous multiples for small(ish) chunks of companies like Facebook he
allows their founders to delay flotation.
Valuation
For a valuation, start with the rapidly expanding Russian business that is
expected to make $150m of net profit in 2011. Multiply that by 30 – a
typical forward multiple for other emerging market internet companies.
Then charitably take the venture capital investments at face value: perhaps
$1bn or so for 2.4 per cent of Facebook, 1.5 per cent of social game company
Zynga and 5 per cent of online coupon company Groupon. Altogether, that
suggests a market capitalisation of about $5.5bn.
Penetration rate
Still, there are reasons to be nervous. Publicly available figures are hard to
come by. Conflicts of interest may arise as Facebook expands in Russia, and
Russian regulators might object if Mail.ru’s hold on the internet gets too
tight. But for investors with appetite for such risks the opportunity is
clear: in terms of internet penetration rates, Russia looks like China in
2004 or the US in 1999.
Investors who are just crazy for Facebook, though, should remember the social
network only accounts for about 15 per cent of Mail.ru’s putative value.
Rather than buy an opaque Russian operator, better to sit tight and wait for
Mark Zuckerberg to call his bankers.
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