Affle India: Analysts explain the oomph factors

Affle India’s business model and strategy has enticed analysts to go gung-ho over the company. The market's enthusiasm is simply evident from the near 240 percent upmove in Affle’s share price during the past three years.

The stock price movement is reflective of the growing investor confidence in the company’s business model and prospects.

The company offers a platform to help businesses acquire, engage and transact with consumers largely through mobile-first digital marketing. It uses its historic data analysis and insights about consumers, including their preferences, habits and behaviours. This information is used to help businesses target users better.

What makes the company different from peers?

In a world where every single person has a smartphone, Affle had a mobile-first approach ahead of its peers, which is evident from its mobile monetisation partnerships undertaken way back in 2009.

This was followed by mobile marketing agency and a mobile marketing platform over the next five years, and eventually, the company begun its own proprietary platform offering the entire palette within the advertising ecosystem.

By 2017, Affle had its own data management and fraud detection platforms.

“Affle is expected to largely benefit from the trends seen in advertising,” highlighted Sharekhan by BNP Paribas.

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“The media agencies are projecting digital advertising to be larger than television advertising due to larger adoption of connected devices leading to massive shift of advertiser’s budgets to at least 50 percent on digital and mobiles, from 30 percent currently,” the brokerage firm added.

The brokerage firm even likes Affle because of strong sectoral outlook, unique business model, its strong presence in high-growth verticals and shift of advertising budgets towards mobiles.

Another thing that investors have taken fancy to about the company is its Cost Per Converted Users (CPCU) strategy which has not only given confidence to its advertisers but has also helped Affle to retain customers.

While the industry is largely dominated by companies operating on clicks, views, and impressions, Affle is well-differentiated as it drives CPCU model-based conversions for advertisers across the industry verticals, analysts said.

The company generates 90 percent of its revenues through CPCU in which the company charges for an advertisement only if the user gets converted, ICICI Securities had said in a report.

“Affle’s unique CPCU model differentiates it from competitors and creates strong return on investment (ROI) for advertisers. Thus, it can keep the competition at bay and maintain/improve pricing despite concerns due to macroeconomic headwinds,” said Sharekhan.

Outlook

Considering the robust demand and rising mobile consumption, the management has given a revenue growth guidance of 25-30 percent compounded annual growth rate over the next five years.

“With upgraded guidance of revenue growth of 25-30 percent over the next five years, margin expansion, and strong return ratios, we remain positive on the stock,” Axis Securities said.

Axis Securities also pointed out that the technology company’s management is confident of gaining margin profile with strong volume growth moving forward, due to the robust Return on Investment-driven CPCU strategy.

“Moreover, it foresees healthy traction in the EFGH categories which are expected to drive revenue led by the company’s strong verticalisation efforts,” Axis Securities said.

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The E(e-commerce, entertainment, EdTech), F(Fintech, Foodtech, FMCG), G(gaming, groceries and government) and H(heathtech and hospitality & travel) is one of the fast growing verticals of Affle.

EFGH categories’ revenue share was greater than 90 percent in FY22, Sharekhan highlighted.

Along with these, strategies such as 2V which is vernacular and verticalisation and 2O which is Original Equipment Manufacturers and operator partnership, would also help capture growth opportunities, according to Sharekhan.

“We believe Affle’s presence in these verticals to continue and expect Affle’s revenue to clock an impressive 32 percent revenue CAGR over FY22-25E,” it added.

Additionally, the company is also planning to make further inroads into Europe, North America, and South Korea which will enable Affle to achieve higher volume growth and add a higher number of devices moving forward, Axis Securities pointed out.

The domestic brokerage firm believes that Affle has a unique business model and a strong strategy in place to penetrate the targeted geographies and verticals.

Even ICICI Securities is of the view that Affle can grow better than the industry given its past track record and major exposure to emerging markets, which are not much impacted by macros.

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On the valuation front, Axis Securities said the stock is trading 39 times P/E multiple to its FY24 earnings of Rs 34.5 per share.

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