Qiwi Has Another Beat-and-Raise Quarter

Despite strong June quarter results, we believe investors are focused on slowing wallet growth of 12% in the June quarter (versus 20% in the March quarter) and moderating payment volume growth of 17% in the June quarter (versus 20% in the March quarter). We believe concerns are justified, but increasing wallet usage and increasing revenue yield will remain key drivers of future growth, in our opinion. Volume per wallet rose 1% year-over-year (+3.3% quarter-to-quarter) and implied revenue yield increased 18 basis points year-over-year (or 9 basis points quarter-to-quarter).

We believe Qiwi has several initiatives (e.g., advertising, new services, innovation, new pricing) that will support growth in those important metrics. June-quarter results marked the fifth consecutive quarter of adjusted EPS comfortably exceeding our expectations; we are raising our estimates. June-quarter adjusted EPS rose 56%, to $0.50 (versus our $0.41 estimate and the Street’s $0.39), with upside driven by better-than-expected revenue (10% above our estimate) and adjusted EBITDA margins (940 basis points above our estimate); about 615 basis points of the margin upside was related to about RUB 130 million of marketing spend that was deferred to the second half (related to the regulatory environment).

Revenue rose 35% year-over-year, driven by 17% volume growth (versus our estimate of 14% growth) and 18 basis points of yield expansion, to 1.35% (versus our estimate of 1.26%). High-margin inactivity fees moderated, falling 33% year-over-year, to RUB 156 million, but continue to buoy results. We believe expanding net revenue yield remains an opportunity for Qiwi as the business mix evolves. Implied revenue yield rose 9 basis points sequentially, to 1.35%, and the metric is up 18 basis points year-over-year (versus 1.17% in the year-agoquarter). In addition to improving business mix, the sequential increase was partially driven by Qiwi’s decision to reduce agent payments by 20 basis points in March 2014.

Payment volume for the three highest-yielding verticals (e-commerce, financial services and money remittances) rose 44% year-over-year (versus 50.5% in the March quarter) and represented 52% of total volume (versus 42% in the year-ago-quarter). The financial services vertical (21% of total revenue) appears to be the most at risk from recent economic developments in Russia; management appeared comfortable with its other segments. Management anticipates a broad slowdown in consumer lending and banking in Russia, which will likely dampen growth within the financial services vertical. In the June quarter volume from the vertical rose 44% year-over-year (versus 52% in the March quarter); while higher yield drove segment revenues up 112% (versus 99% growth in the March quarter). In the second half we anticipate segment revenues to grow 72% year-over-year. Qiwi could benefit over the long term if banks reduce branches to cuts costs, as more people would likely use the Qiwi network for banking services.

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