Analyst Sees Tough Times For Russian Media Companies

Spending in the Russian advertising market will slide 40 percent measured in dollars next year, according to an analyst who slashed price targets roughly in half on a raft of related media companies Wednesday. Russian media companies are sure to get hurt both buy a domestic recession as well as the still-unfolding currency crisis, Morgan Stanley's Edward Hill-Wood. Such companies are likely to earn far less next year than the current Wall Street consensus, according to Wood, who said current estimates on average haven't yet considered inflationary pressures on wages and other costs. CTC Media Inc. CTCM, a U.S. company based in Moscow which operates three Russian TV networks, "faces unusual uncertainty" according to Wood, noting recently enacted rules limiting foreign ownership of Russian media companies to 20 percent. Wood cut his target on CTC to $4.40 a share, from $12, but maintains an Equal Weight rating. The company has recently lost audience share and faces an estimated 5 percent decline in advertising spending next year as measured in rubles. Yandex NV YNDX, a Netherlands-based Internet company and a search provider operating mainly in Russia, has been losing traffic to Google Inc.'s GOOGL Android platform. Yandex meanwhile faces likely wage inflation of more than 20 percent in order to keep on board its key employees, along with similar hikes for rent and capital spending, Wood said. "There is still long-term value in Yandex's search franchise," Wood said, although he cut his price target on Yandex to $20 a share, from $40, maintaining an Over Weight rating. Cyprus-based Qiwi PLC QIWI, which offers electronic payment services in Russia and in the Commonwealth of Independent States that mostly comprised the former Soviet Union, should prove relatively resilient in the near term, according to Wood. But elements of its revenue stream, including advertising and financial services, are at risk from the economic downturn and currency crisis. Longer term, Wood worries about emerging competitive headwinds that may cast doubt on Qiwi's sustainability. Wood cut his target on Qiwi to $19 a share, from $32, maintaining an Equal Weight rating. Mail Ru Group Ltd. MLRYY, a Moscow-based email and Web site provider, will likely see 2015 revenue growth slow to 4 percent, from 15 percent in 2014, according to Wood, who cut his target on the company to $20 a share, from $39, although his rating remained Over Weight. Russia's total economy will shrink 1.7 percent in 2015 according to Morgan Stanley's Alina Slyusarchuk, who until recently had predicted just a 0.5 percent contraction. But besides the recession, Russian Media co