Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Affle India Ltd (BOM:542752, Financial) achieved a 27.8% year-on-year revenue growth in Q1 FY25, reaching INR5,195 million.
- The company reported its highest quarterly EBITDA of INR1,047 million, reflecting a 24% year-on-year increase.
- Affle India Ltd (BOM:542752) successfully integrated all acquired businesses, enhancing operational efficiency and strategic synergies.
- The CPCU business delivered 90.8 million conversions at a CPCU rate of INR57, contributing to a 37% year-on-year increase in CPCU revenue.
- The company demonstrated strong growth in developed markets, with a 36.9% year-on-year increase, contributing 26.8% to quarterly revenues.
Negative Points
- Employee expenses grew by only 4% year-on-year, indicating potential constraints in workforce expansion.
- The effective tax rate increased to 8.7%, impacting the net profit margins.
- Data inventory costs stood at 6.6% of revenues, which could affect profitability if not managed efficiently.
- The company's gross margin has not returned to previous highs of 48-50%, indicating challenges in margin expansion.
- There is ongoing uncertainty regarding the impact of Google's privacy sandbox project on future operations.
Q & A Highlights
Q: Congrats on good set of numbers. I have two questions. First one is top verticals contribution has increased 95% from 90% earlier. So which vertical led this growth in the current quarter?
A: Thank you for your question. Yes, we are seeing very broad-based growth overall. But I would say that the growth in the gaming vertical, both in emerging markets and the developed markets, has been significant.
Q: How is the growth in the US market and emerging markets shaping up, except India? Can you provide growth rates in those emerging markets and an outlook?
A: Our overall growth on a consolidated basis, organic growth this quarter has been over 20%, which is very positive. We are seeing sensible growth in India and emerging markets overall. In developed markets, we are moving forward in a much stronger way after the pullbacks and effects we saw in the previous 1.5 years.
Q: Employee expenses have grown just 4% YoY. What is your outlook on employee expenses going forward?
A: Due to the integration and consolidation of our global businesses into one single cash-generating unit, we have seen significant efficiencies. We don't need to grow our employee base as much, and there has been some efficiency gains. We are adopting new technologies like Gen AI, which has also contributed to these efficiencies. As business expands, we expect to keep our employee expenses largely flattish for the foreseeable future.
Q: Since other emerging markets and developed markets are growing faster than India, and Affle is investing in premium inventory, do you expect acceleration in the CPCU rates from the current 3% to 4% annual growth?
A: It is possible to see some lift in CPCU rates. However, given our investments in premium inventories, we see that effect being utilized from a margin perspective. We are strategizing to work with different strategic platforms and partners to attract top dollars, which should help us achieve higher margins.
Q: There was news around the TCL partnership with BDSmart towards the end of the last quarter. Is that what you are referring to when you talk about investing in premium inventory?
A: The TCL partnership is one example. We are doing several partnerships and investments. We are working with app stores of OEMs and pushing Affle and iOS as a platform across all global emerging markets. Our strategy is to go for the highest value and highest wallet share of consumers, which will provide defensible, sustainable margin expansion and better profitability.
Q: Do rankings on platforms like Affle performance index impact your ability to get more advertising dollars from agencies?
A: Rankings are an indicator that we are doing well versus competition, but the essence of winning business is about delivering performance and conversion. The direct versus agency business mix is within a range of 70% to 75% direct business. The important thing is that we are serving the end advertiser and delivering performance back to them.
Q: On gross margin front, we have seen days of 48%-50% gross margin. Is it in our plans to come back to that margin level, or is this the new normal?
A: We are consistently utilizing data and inventory costs to earn revenue and investing into the future. We are calibrating our business plan towards premium positioning to deliver higher value to advertisers and create a competitive moat. The current margin profile is sustainable, and we will consistently endeavor to do what is right for our business in the long term.
Q: Do you see similar action panning out in the GID depreciation as well?
A: The delay in Google's privacy sandbox project, which includes GID, indicates complexities and challenges. We are fully prepared and ready for any changes. We transformed the iOS privacy changes in 2021 into a competitive advantage and are confident in navigating any ecosystem-level changes.
Q: What percentage of your total revenue comes from new downloads or transactions?
A: Each advertiser has different levels of split based on their stage of journey. A new advertiser might put 80% of the budget on new user acquisition, while an incumbent might balance it with 60%-70% on new acquisition and 30%-40% on repeat conversions. For Affle, we focus on maximizing conversions from users, whether new or existing.
Q: How do you see growth in emerging and developed markets in the coming years? Which market are you more bullish on?
A: We see good momentum across both emerging and developed markets. In developed markets, the addressable market is very large, and we are still small, providing a massive runway for long-term growth. In emerging markets, the competition is different, and we are well-positioned. Both segments provide the ability to deliver a similar margin profile in terms of bottom-line efficiencies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
