Dow Jones Investment Banker

Buying Developing Market

Internet Growth

With the mail.ru IPO due to come to market on November

8th, Dow Jones Investment Banker unpicks some of the
numbers behind the prospectus documents.

© 2010 Dow Jones & Company

Dow Jones Investment Banker

The Company ............... Mail.ru Group Limited.

The GDRs ................. Each GDR will represent one Ordinary Share deposited with
Citibank, N.A. —London, as custodian for Citibank, N.A., as
depositary.

consisting of (i) 3,032,727 GDRs representing Ordinary Shares

There is a dual share
structure - GDRs represent
Ordinary Shares, but Class A
shares have 25 votes
with Russian law and other jurisdictions outside the United States in

Over-allotment Option . . . . . . . . 3,162,429 additional GDRs representing Ordinary Shares at the

............ The company will have net cash

US$23.70 to US$27.70 per GDR.
Shares issued depend
Shares Outstanding Prioron to price
the
of around $85 million, this
. . . . around
in market, but . . . . . . . 205
...... means company
40,824,000 Ordinary Shares and 151,698,000 valued
Class A Shares.
million shares will be issued, so (simplistically) at 2011 24x
values the equity of company Ev/Ebitda and 17.5x 2012 (not
at $4.85Bn to $5.70Bn accounting for minorities)
Shares Outstanding After the
................. 78,596,528 Ordinary Shares and 117,688,545 Class A Shares
assuming no exercise of the Over-allotment Option and an issue
price at the midpoint of the range shown on the front cover hereof.
The Company has authorized up to 4,081,341 Ordinary Shares to be

Ordinary Shares to be issued upon Admission pursuant to options

exercised on a cashless basis by senior managers and employees of

Voting . . . . . . . . . . . . . . . . . . . . Each GDR carries the right to vote one Ordinary Share, subject to
the provisions of the Deposit Agreements and applicable BVI law.
Each Ordinary Share carries one vote. Each Class A Share carries
25 votes.
Use of Proceeds
Mostly owners selling down, representing new Ordinary Shares to fund a portion of its acquisition
of an additional 7.5% interest in VK. The Company will receive no
but company also raising cash proceeds from the sale of GDRs by Selling Shareholders.

Listing and Trading .......... Application has been made for the GDRs to be admitted to trading
on the London Stock Exchange ’s regulated market for listed
securities. Neither the Ordinary Shares nor the Class A Shares are
listed or traded on any stock exchange.
Lock-up . . . . . . . . . . . . . . . . . . . Until 180 days after the Closing Date, applicable to the Company,
the Selling Shareholders, the Senior Managers and certain
non-selling shareholders, subject to certain exceptions. In addition,
we have instructed the Depositary not to accept deposit of Ordinary
Shares, or issue GDRs, for 180 days after the date hereof (other than

© 2010 Dow Jones & Company

Dow Jones Investment Banker

Major Shareholders and Related

Party Transactions . . . . . . . . . Our three largest shareholder groups are (i) three companies
controlled by Alisher Usmanov, (ii) MIH Russia Internet BV (part
So the dual class of of the Naspers Group) and (iii) the Company s founders.
’ Following
the Offering and conversion of certain Class A Shares to Ordinary
shares mean that the Shares, these shareholders will together beneficially own and control
original owners have close to 98% of the votes cast at the general meeting.

98% of the votes The Company has entered into a Relationship Agreement with its
affiliate, DST Global ( ‘‘DSTG ’’) governing the relationship between
the Company and DSTG. The Relationship Agreement includes
tag-along rights in the event DSTG or any affiliated transferee sells
certain shares in Facebook and Zynga.

Consolidated Financial Statement Data Six months

Year ended December 31, ended June 30,
2007 2008 2009 2009 2010
(in millions of US$)
(audited) (unaudited)
Income Statement Data
Online advertising . . . . . . . . . .Just . . . . gone
. . . . . . profitable
. . . . . . . . . . at
. . . the — — 62.8 24.5 38.6
IVAS . . . . . . . . . . . . . . . . . . . . . . . . . . . operating
. . . . . . . . . . .level
..... — — 63.4 20.2 56.0
Payment processing services . . . . . . . . . . . . . . . . . . . . . . . . . . 16.6 — —
Online recruitment services . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 17.5 8.2 11.4
Dividend revenue from venture capital investments . . . . . . . . . — 0.1 1.6 0.6 1.2
Other revenue .................................... 4.5 — 3.1 1.0 1.5
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 0.1 148.3 54.6 108.7
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.4) — (34.3) (12.2) (25.7)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 0.1 114.0 42.4 83.0
Net gain/(loss) on venture capital investments and associated
derivative financial assets and liabilities . . . . . . . . . . . . . . . . (10.9) (12.7) 1.5 1.2 1.6
Research and development expenses . . . . . . . . . . . . . . . . . . . . — — (1.0) — (1.3)
Selling, general and administrative expenses (1) . . . . . . . . . . . . . (9.7) (54.6) (96.8) (33.6) (53.2)
Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . — — (1.8) — —
Depreciation and amortisation (2) . . . . . . . . . . . . . . . . . . . . . . . (0.1) — (29.9) (11.4) (22.4)
Operating profit (loss) .............................. (16.0) (67.2) (14.0) (1.4) 7.7
Finance income ................................... 1.9 1.2 1.5 0.8 0.4
The sell-side analysts are
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.4) (3.3) — — —
Net gain/(loss) on derivative going
financial for around
assets $220over
and liabilities
million Ebitda next. . year
the equity of strategic investees . . . . . . . . . . . ......... 0.3 0.5 (3.6) (1.1) (0.7)
Net gain on acquisition of control in strategic associates . . . . . . — 91.9 14.8 14.8 —
Net gain/(loss) on disposal and of shares approximately
in strategic associates $300. . . . 20.4 (0.1) 113.1 113.1 —
million
Net gain/(loss) on loss of control in 2012 . . . . . . . . . . . .
in subsidiaries 167.8 — (7.1) — —
Net loss on disposals of intangible assets . . . . . . . . . . . . . . . . . (0.3) — — — 0.7
Net foreign exchange gains/(losses) . . . . . . . . . . . . . . . . . . . . . (0.2) 34.7 13.5 12.1 10.7
(Impairment losses)/reversal of impairment losses related to
associates and available for sales investments . . . . . . . . . . . . — (53.1) 46.7 — —
Share of profit/(loss) of equity method investees . . . . . . . . . . . 3.9 (16.5) 18.0 7.3 (12.4)
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 0.7
Other gains/(losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 0.1 — (1.1)
Profit/(loss) before income tax expense . . . . . . . . . . . . . . . . . . 174.5 (11.9) 183.0 145.6 5.4
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8) (0.1) (17.3) (10.6) (8.6)
Net profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173.7 (12.0) 165.7 135.1 (3.1)

© 2010 Dow Jones & Company

Dow Jones Investment Banker

Selected Segment Data

which are the segments that (together with ICQ) will form the core of our consolidated operations after

ownership interest in and consolidation of all key subsidiaries and associates composing the segments in

attributable to the group for the applicable segment would have been had all applicable IFRS adjustments
been applied for the periods indicated.

Mail.ru Segment
The following table sets forth the Mail.ru segment income statement for the periods indicated. This

the respective dates at which we acquired control in 2009.

The mail.ru division had a poor Year ended

December 31,
Six months
ended June 30,

(in millions of US$)

2009 as did many similar 2007 2008 2009 2009 2010

Revenue
companies, but is rebounding (audited) (unaudited)

Online advertising: strongly this year. Sell-side con-

Display advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.8 44.4 44.5 17.1 26.7
Context advertising . . sensus
. . . . . . . . expects
. . . . . . . . .group
. . . . . . .revenue
. . . . . . . . .30%. . . . 7.0 17.8 16.0 6.8 11.0
Total On-line advertising CAGR . . . . . . . growth
. . . . . . . . . . for
. . . . . . next
. . . . . . . three
. . . . . 44.8 62.2 60.5 24.0 37.8
IVAS: years.
MMO Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7 38.9 64.9 25.0 44.4
Community IVAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 3.6 7.1 3.0 9.3
Other IVAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 6.7 5.8 2.4 2.6
Total IVAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 49.3 77.9 30.5 56.4
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 — — — —
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.5 111.5 138.4 54.5 94.2

OK Segment
The following table sets forth the OK segment income statement for the periods indicated. Our OK
segment includes OK and its subsidiaries for all periods presented, assuming 100% ownership. In contrast,

June 30, 2010.

Year ended Six months

December 31, ended June 30,

(in millions of US$)

Obviously should grow as 2007 2008 2009 2009 2010
economy rebounds. (audited) (unaudited)
Revenue
Online advertising:
Display advertising ................................ 1.2 14.4 13.0 6.0 8.0
Context advertising ................................ 0.3 2.1 1.6 0.9 0.8
Total On-line advertising ............................ 1.5 16.5 14.6 6.9 8.7
Community IVAS ................................... — 4.2 29.7 12.9 21.5
Other revenue ..................................... — 0.3 — — —
Total revenue ....................................... 1.5 20.9 44.3 19.8 30.2

© 2010 Dow Jones & Company

Dow Jones Investment Banker

Group Structure

strategic minority investments, international investments and other Russian and Ukrainian investments.

Facebook is being valued at $35

billion in the grey market,
implying $833 million holding
Mail.ru Group Limited
(Founded in 2005) for company.

Strategic Core Concolidated Subsidiaries International

Minority Investments
Investments Mail.ru Internet NV (available-for-sale
(equity (100% equity interest) accounting)
method (My World Social Network, Agent IM,
accounting) Email, Games, Mail.ru Portal) Facebook Inc.
(Consolidated since December 2008) (2.38% equity
VK.com interest) (3)
(32.49% Odnoklassniki Limited
Zynga Game
equity (100% equity interest)
Network Inc.
interest) (1) (OK Social Network)
(1.47% equity
(Consolidated since August 2010)
interest) (4)

QIWI Newton Rose Limited Groupon

Investments (91% equity interest) (2) Inc.
(25.09% (Headhunter Online Recruitment Services) (5.13% equity
equity (Consolidated since February 2009) interest) (5)
interest)
ICQ LLC
(100% equity interest) Other Russian and
(ICQ IM network) Ukrainian
(Consolidated since July 2010) Investments
(fair value through
Zynga and Groupon valued at $5.6 billion and
accounting)
$1.46 billion on grey market.
15 Russian and
Ukrainian venture
capital investments
If we assume the international minorities are worth
$900 million, the rest of the business is then valued at
19x Ev/Ebitda for 2011 and 14.5x 2012

On a P/E basis, if we back out minorities, valuation becomes 30x 2011 and 20x the
year after. This valuation is close to that for the Chinese players, so the shares become
a macro play on both China and Russia

US peers such as Google or Yahoo trade P/Es of on 19x and 16x 2011 and then 15x
and 13.5x the year after. But the Chinese peers such as Alibaba.com, Tencent and
CTrip are much higher and are on 25x, 30x and 33x P/E 2011 respectively.

© 2010 Dow Jones & Company

Dow Jones Investment Banker

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