QIWI Solid Fourth Quarter and 2014 Outlook

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QIWI December-quarter adjusted EPS were $0.33, which compared with our $0.22 estimate and the consensus estimate of $0.27, with upside driven by better-than-expected revenue and adjusted EBITDA margins.

Revenue rose 35% year-overyear and adjusted EBITDA rose 30% year-over-year as QIWI incurred heavy investments. High-margin inactivity fees continue to buoy results and will create a modest headwind as fees normalize in 2014. During the quarter, QIWI benefited from RUB 137 million of inactivity fees, which compares with the RUB 224 million booked in the June quarter and RUB 134 million booked in the September quarter. Excluding inactivity fees in the quarter, QIWI still comfortably exceeded our expectations—we estimate adjusted revenues rose 24% year-over-year and adjusted EBITDA rose 5.5% year-over-year. For the year, revenues rose 48% year-over-year and adjusted net profit rose 68% year-over-year.

Management indicated that its 2014 guidance was not influenced by the pending regulatory changes and believes the bill will ultimately be focused on peer-to-peer payments (P2P). A law targeting peer-to-peer transfers (as opposed to the initial draft of all electronic transfers) would likely have minimal impact to QIWI as the company does not charge for these services. Further, QIWI’s relationships with mobile network operators (MNO) could position the company to benefit if “soft” identification standards become the industry standard (as opposed to identifying with a passport at the post office). While uncertainty remains high and a transition could affect the business over the near term, we believe the company has various strategies to adapt to the final rules.

Management cited strong trends in the March quarter and disclosed that its 2014 outlook remains unchanged relative to expectations one month ago (before the crisis in Ukraine or the proposed terrorism legislation). Further, we believe guidance is encouraging given the inactivity-fee headwind. Management expects margin expansion in the second half as the company leverages expenses and recovers its advertising revenue.

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