VK, a leading Russian internet holding company, has unveiled a grim financial report for the year 2024, revealing staggering losses that exceeded 90 billion rubles ($1.2 billion) and a troubling debt-to-capital ratio of 6.4. These figures signal ongoing struggles that have left the company at a crossroads, prompting management to seek drastic measures to stabilize its financial situation.
The new management team, which took over in late 2021, has been criticized for its ability to navigate the challenging landscape. The company's EBITDA (earnings before interest, taxes, depreciation, and amortization) tanked from a positive 30 billion rubles in 2021 to a negative 5 billion rubles in 2024. Additionally, VK's net debt skyrocketed from 34 billion rubles to a staggering 174 billion rubles, partially due to a 60 billion ruble bailout from the National Wealth Fund at a 4% interest rate, raising concerns about reliance on state funding.
As part of its response to crippling losses – which rose from 15 billion rubles in 2021 to nearly 95 billion rubles in 2024 – VK's management has announced plans to hold an extraordinary shareholder meeting on April 30, 2025, to discuss a proposed share issue aimed at raising 115 billion rubles. This additional capital is expected to be crucial for reducing the company's debt burden.
The share placement is set at 324.9 rubles per share, corresponding with the average market price over a three-month period, providing existing shareholders the right to purchase additional shares before the general public.
VK's dire financial circumstances have led to violations of credit agreements with banks, raising alarms about its future operations. Reports indicate the firm has accumulated a negative working capital of minus 113.5 billion rubles as of year-end 2024, illustrating that short-term liabilities far exceed its short-term assets.
“The probability and sources for VK to meet its obligations suggest substantial uncertainty, which could cast doubt on the company's ability to continue as a going concern,” the report stated, underscoring the precariousness of VK's financial standing. The company intends to manage its obligations through debt restructuring with related parties, particularly financial structures interconnected with Gazprom.
Despite the financial turmoil, VK asserts that it remains a market leader in the Russian internet space, claiming an average daily audience (DAU) of 77 million users and a coverage of over 95% of the Runet audience. The time spent by users on its platforms also grew by 29%, reaching 4.4 billion hours in total. Revenue from the Social Platforms and Media Content segment reached 104.3 billion rubles, marking a 23% growth over the year, although this also recorded a negative EBITDA adjustment of 1.4 billion rubles.
However, not all segments have performed poorly. Revenue from its Educational Technologies segment surged by 83% to 6.3 billion rubles, with an adjusted EBITDA of 600 million rubles, while the Technologies for Business segment saw revenue growth of 42% to 13.6 billion rubles.
VK's struggles are not only symptomatic of internal mismanagement but also reflect broader issues within the Russian tech ecosystem that faces pressures from economic conditions and regulatory landscapes. Analysts speculate that the company's reliance on actors like Gazprom for loans and structural support contributes significantly to its volatility.
As VK navigates this tumultuous period, questions linger about its leadership effectiveness and the sustainability of a business model heavily reliant on government support and the fate of its ambitious but precarious growth plans. Whether the upcoming shareholder meeting will provide a roadmap to recovery or further expose the company to risk remains to be seen.
The outlook for VK remains uncertain, as the firm balances aspirations for recovery with the harsh realities of its financial situation. Investors will be watching closely as the company attempts to leverage its vast user base against mounting debts and losses.
