Correction: in this note we stated on page 7 that “Yandex gained a 3-5% share of the Turkish market within a year.” This should read “Yandex could gain a 3-5% share of the Turkish market within a year”.
Aton recently hosted a Media and IT Day. A series of one-on-one meetings were held with representatives of Russia’s leading listed IT (IBS Group, Armada), TV (CTC Media, O2TV) and internet companies (Yandex, RBC). To provide an alternative view on the Russian internet media market, we also welcomed the participation of two private internet venture companies, Fast Lane and Eruditor Group.
FY11E revenue guidance unchanged despite economic uncertainty. Echoes of the 2008-09 crisis were behind the negative performance of TMT cyclical stocks in 2011, in our view. Experience suggests that IT and advertising spending can be quickly cut when the economy deteriorates. That said, we have not seen aggressive cuts this year: most cyclical companies (Yandex, RBC, Armada, Mail.Ru) have confirmed their FY11E revenue growth estimates, while IBS Group even increased its forecast recently. While we do not believe the FY12E outlook looks rosy, there is a possibility that the markets are exaggerating the risk for cyclical TMT companies beyond a level that can be justified by the real economic situation.
Be prepared before the pendulum swings. Cyclical stocks are usually the first to plunge in a downturn and frequently the first to recover, often before the initial signs of an economic recovery appear in statistics. The current economic uncertainty provides investors with breathing space in which to analyse the cyclical companies before the market begins its recovery. The 2008 crisis came largely as a shock to the real and financial sectors of the economy. The negative effect was exacerbated by gloomy expectations beyond 2008 and the credit crunch which ended up determining the depth of the downturn in 2H08-2009. Currently, market discussions are focused on whether we will see a period of low growth or a full-blown recession with no one expecting a positive outcome. If clear evidence emerges pointing to a downturn – rather than a recession – in 2012, the stocks discussed in this note may be among the first to perform
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