Rediff.com India Q4 Earnings Call Transcript

123jump.com Staff
07 Jul, 2011
New York City

The news, information, entertainment, and shopping portal said quarterly revenue rose 14% to $5.6 million. Net loss in the quarter narrowed 3% to $2.3 million. Net loss per ADS for the quarter was $0.084 as compared to a net loss per ADS of $0.082 for the same quarter last fiscal year.

Rediff.com India Limited ((REDF))
Q4 2011 Earnings Call Transcript
May 24, 2011 9:00 a.m. ET

Executives

Mandar Narvekar – Investor Relations
Ajit Balakrishnan – Chairman and CEO
Jayesh Sanghrajka – Vice President, Finance

Presentation

Operator

Good evening, ladies and gentlemen. My name is Shweta [ph] and I am the moderator for this conference. Welcome to the Rediff.com India Limited conference call. For the duration of the presentation, all participants'' lines will be in a listen-only mode. After the presentation, the question-and-answer session will be conducted for the participants. I''d like to hand over to Mr. Mandar Narvekar. Thank you and over to you, sir.

Mandar Narvekar

Thank you, Shweta. Morning, everyone and thank you for being with us to discuss Rediff.com''s financial results for the fourth quarter and fiscal year ended March 31, 2011. I would like to introduce you to the members of the management present on this call who will take you through the highlights of the company''s performance. We have with us Mr. Ajit Balakrishnan, Chairman and CEO and Mr. Jayesh Sanghrajka, Vice President, Finance.

As mentioned earlier, all of you are currently on listen mode only. This conference call will last for about 20 minutes and then we will be glad to answer any questions that you may have. For your immediate reference, we also posted the earnings release for the fourth quarter and fiscal year ended March 31, 2011, on our website at investor.rediff.com. You may also call me at our Indian office at 91-22-2444-9144, extension 138 and we''ll be glad to fax or email you a copy during the course of this call.

Before proceeding, I would like to mention that during the conference call, except for the historical information and discussions contained herein, statements may constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology, such as may, will, expect, belief, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future, objective, goal, project, should, will pursue or similar terms, variations of those terms or the negatives of those terms.

These statements also involve a number of risks, uncertainties and other factors that can cause actual results to differ materially from those that may be projected by the forward-looking statements. These risks and uncertainties include but are not limited to, a slowdown in the economy worldwide and in the sectors in which our clients are based; a slowdown in the Internet and the IT sectors worldwide; competition; the success or failure of our past or future acquisitions; attracting, recruiting and retaining highly skilled employees; technology; acceptance of new products or services; the development of broadband Internet and 3G networks in India; legal and regulatory policies; managing risks associated with customer products and widespread acceptance of the Internet.

Listeners should carefully review the risk factors and any other cautionary statements contained in our latest annual report on Form 20-F and other reports filed by Rediff.com available through the SEC from time to time. These reports are available with the SEC or are available on request by emailing Rediff.com at investor@rediff.co.in.

Rediff.com and its subsidiaries may from time to time make additional written and oral forward-looking statements, including statements contained in the company''s filings with the SEC and our reports to shareholders. Rediff.com and subsidiaries do not undertake to update any forward-looking statements that may be made from time to time by the Rediff.com or (inaudible)

I would now like to introduce Mr. Ajit Balakrishnan, our Chairman and CEO.

Ajit Balakrishnan

Thank you all for joining us today and on behalf of the management team and board of directors, we thank you for your continued support. Before we discuss our results, I''d like to provide a brief overview of the strategy we instituted several years ago and what it means for our company and for shareholders over the long term.

Beginning in 2008 and over the past two to three years in anticipation of increased investments by government and by many large global telecom companies to improve the telecommunications infrastructure in India, we made a strategic decision to intensify investments in our service offerings to improve the user experience and to enter new markets that we believe would position the company well for the unfolding future.

We launched a new social media initiative, MyPage, and continued to build our offerings with music, video and file sharing capabilities through iShare. In recent quarters, we have made new offerings, such as a paid mobile mail service, Rediffmail NG, which addresses the business needs of both small and medium enterprises, and at a very competitive price. Our recently launched service, Rediff Deal Ho Jaye is a group deal offering in India, a phenomena that we believe holds growth potential for our company.

Further, our offerings through VuBites makes TV advertising in India local and affordable. Our entire website is mobile enabled. So a newly build app platform developers that partner with us have the ability to add features to our services or utilizing APIs. Not everyone in our market has this added functionality and we are heavily focused on leading the industry with innovative services and best-in-class technology.

To add, all of our recent investments were made with a view to position leader for the future. As you will see from our quarterly and year-over-year performance, they are beginning to see traction, though I must remind everyone that we believe that we are still in the infancy stage of realizing the company''s true potential.

It is my belief that the reflections of these initiatives in our revenue and profits will happen with the expected arrival of broadband and the 3G revolution in India. At the same time, I also believe it will take another 12 to 24 months until the infrastructure gets to a point where broadband adoption reaches the mass market, driven by high quality services, devices, networks and for the consumer, speed and ease of use. Until then, we will continue to invest in our business to reach more subscribers in both urban and rural areas to provide them with value-added features that make Rediff their preferred destination. I''ll touch upon some of these initiatives in just a few moments.

Moving on to our performance for the quarter ended March 31, 2011, our India online ad revenues grew 24% on a year-over-year basis and 2% sequentially, while our total India revenue, which includes fee-based services grew -- total India revenue, which includes fee-based and online advertising revenue, grew 20% and 1% for the same respective periods.

Additionally, revenues from our U.S. publishing business declined 14% on a year-over-year basis and India fee business grew 9% for the years ended March 31, 2011, and March 31, 2010.

At the end of our fiscal year, our active user base stood at 15.4 million users in India. This represents a year-over-year growth of 43%, a growth rate faster than the total Internet market in India, which is growing at a relatively slow pace of 13% annually, according to comScore. Additionally, our registered user base at the end of the quarter stood at 101 million, which is 13% increase over the same quarter last year and up 3% from last quarter.

Currently, the broadband subscriber base, as indicated by the Telecom Regulatory Authority of India, is still relatively low at 11 million subscribers, especially when considering the size of India''s population, which is approximately 1.2 billion today. We believe that Internet growth in India depends on a host of factors, all of which we expect to individually and collectively lead to increased adoption.

For example, the reach of Internet in Tier 2 and Tier 3 towns, affordability of bandwidth costs, local hosting, pairing [ph], flat-rate customer charges on unlimited use, content that can be consumed by non-English speaking audiences, availability of Indian language keypads and, of course, widespread adoption of smartphones and tablets are some of the factors which will determine how much broadband spreads.

Of late, there have been a number of positive steps to improve India''s Internet infrastructure. One of the most positive developments is the recommendation by the Telecom Regulatory Authority of India that U.S. $15 billion be spent as a public investment to create a fiber backhaul infrastructure.

Additionally, major mobile phone companies have announced the launch of 3G services, after having invested $22 billion for 3G licenses. We have discussed this previously. As yet, these services are being promoted only in select cities. There are a number of factors that decide the uptake of 3G services and we believe the most meaningful will be data charges and the cost of compatible handsets as well as the speed and content available.

While we expect to see consequential improvements based on these new services and as we all await Internet growth to reach an inflection point, we are focusing on improving operating efficiencies, strengthening our core advertising business and perhaps most importantly, enhancing our sales and marketing efforts to reach a much broader population throughout India.

In our core business of display advertising in India, we''ve been able to provide better delivery and performance through the introduction of number of innovations and newer ad formats, as I''ve discussed earlier. We have increased the reach of our sales force by expanding into smaller towns and subsequently migrating offline categories online and, thereby reducing our dependency on online advertisers.

The key factors for the growth in our display advertising businesses are our News, MyPage, Moneywiz and iShare offerings. We''ve recently introduced a new feature, SlideSong, which enables users to play the photo album and add music to the same and share this with their friends on MyPage.

We have also improved the discovery of SongBuzz through the movie section of Editorial, where we feature songs from the latest movie releases. We see an opportunity to deliver a paid mobile email service for SMEs through Rediffmail NG, which seamlessly works across almost all mobile phone platforms including Symbian, Java, Android and Mediatek.

As you know, we''ve signed up MTNL in Delhi and Mumbai, which are government efforts and we are in advanced discussions with other operators. We expect this to add a new revenue stream to our subscription-based businesses and we strongly believe mobility holds good potential for our company in the long term.

Again, this is the first in a phase of initiatives that will be targeted to mobile subscribers and mobile operators. The recent industry-wide movement to deliver services and content through applications on hand-held devices, particularly in more advanced markets, we will be looking to sell a tablet-based service on a subscription basis to part of our 3.5 million users outside India.

We have a strong brand presence through both online and print and we believe tablet-based devices represent a new media product to expand our service offering and reach more consumers. We hope to have more information to share with you over the coming quarters regarding our launch plans and the market opportunity.

A few other key milestones; as you know, our fee-based revenue is primarily driven by online shopping and Rediff were recently rated by Economic Times Newspaper survey as the number one eCommerce brand in India. We deal with 300 vendors and 100,000 SKUs, and deliver to 40,000 zip codes in India with multiple payment options.

To leverage the advantage of our presence in this business, we recently launched a group deal service Rediff Deal Ho Jaye in 40 Indian cities, with 77 categories and with a cash on delivery facility as one of the payment options.

Given our 15 million active users, we believe we are in a relatively better position than others in our market to provide value to merchants throughout the country. Further, we see group deals offerings as a natural evolution to Local Search and Online Classified business and a potential driver for our overall fee-based revenue in future periods, especially considering that the service can be accessed from the PC as well as through SMS on mobile.

This is important, as it enables us to overcome near-term challenges posed by low Internet and broadband penetration as we all wait for infrastructure and networks to improve. Lastly, this is another step in the direction of providing advertising solutions for local businesses in their city of operation, which is a very important differentiator for Rediff.

On the topic of locality, we''re also looking to grow our local TV Ads business and we believe we have done truly something innovative here. Our brand here VuBites offers web-based tools that small merchants can use to create low cost TV ads of their own in an MPEG-2 format which play on television directly.

We also have tools where the small merchant who does not have a media planner can create the media plan without any help and the technology to insert TV ads at the local level. We have complete -- almost completed testing with four operators and two channels in Bombay City covering prime suburb of Bombay and we are in the process of extending the service to other cities and we will thereafter work on a national rollout. This service is a hedge in case broadband rollout delays for another two years.

Our investment philosophy hasn''t changed since we last spoke and it''s my intention to continue investing $1 million to $1.5 million per quarter for the foreseeable future. All of these investments again are focused on growing the Rediff brand nationwide and improving the customer experience.

At this time, I''d like to turn the call over to Jayesh, as he will discuss our financial results in detail before I make a few closing remarks.

Jayesh Sanghrajka

Thank you, Mr. Balakrishnan and good morning to all. Our overall revenue for the quarter ended March 31, 2011, were $5.6 million as compared to $5 million in the same quarter last fiscal year, an increase of 14%.

During this quarter, revenues from India online were $4.8 million, an increase of 20% for the corresponding quarter last fiscal year, mainly on account of growth in the India online advertising revenue, which we believe was a early result of our strategy detailed by Mr. Balakrishnan above.

The revenue from our U.S. Publishing business were $0.8 million for the quarter, a decrease of 14% for the same quarter last fiscal year. Cost of revenues during the quarter increased by 18% to just under $3 million compared to $2.5 million for the same quarter last fiscal year, mainly on account of website connection and maintenance costs, in line with our strategy of enhanced user experience and introduction of new services.

Gross margins for the quarter ended March 31, 2011, were 48% compared to 50% from the same quarter last fiscal year. Operating expenses during the quarter decreased by 8% to approximately $4 million compared to $4.3 million for the same quarter last fiscal year.

Operating EBITDA showed a loss of approximately $1.3 million for the quarter ended March 31, 2011, as compared to an operating EBITDA loss of approximately $1.9 million for the corresponding quarter last year. As you are aware, operating EBITDA is a non-GAAP measure and we direct you to our press release dated today, which sets out the reconciliation of operating EBITDA to net income fee.

Depreciation and amortization expenses decreased to $1 million for the quarter compared to $1.2 million for the same quarter last fiscal year. Interest income for the corresponding quarter was actually flat at about $0.8 million in both periods.

We regularly review our investments for change in market scenarios, uncertainties involved segment with our long-term strategy, et cetera and take a conservative view of carrying values for our investments. As a result of this review, during the current quarter, we recorded an impairment charge of approximately $0.5 million for one of our invested companies. We also recorded an intangible asset impairment charge of $0.1 million.

Net loss for the quarter ended March 31, 2011, was $2.3 million as compared to the net loss of approximately $2.3 million for the comparable quarter last fiscal year. Additionally, net loss per ADS for the quarter was $0.084 as compared to a net loss per ADS of $0.082 for the same quarter last fiscal year.

Moving on to full year comparison, all information is for the fiscal year ended March 31, 2011 and March 31, 2010, respectively. Again, total revenue increased by 16% to $21.8 million as compared to $18.8 million. The increase is mainly on account of increase in India Online Advertising revenue by 30% from $10.6 million to $13.8 million.

Cost of revenue was $10.8 million as compared to $10.1 million, an increase of 7%, mainly on account of an increase in website connection and maintenance as well as cost [ph]. Gross margins for the year have improved to 50% as compared to 46% last year. Overall operating expenses increased by 3% to $15.8 million as compared to $15.4 million.

Depreciation and amortization expenses decreased to approximately $3.8 million compared to $5 million for the previous fiscal year. Interest income decreased from $3.4 million as compared to $4 million last year. Additionally, net loss for the full year ended March 31, 2011, was $6.6 million or $0.238 per ADS, as compared to a net loss of $8 million or $0.236 per ADS for the comparable fiscal year.

Our total cash and cash equivalent stood at $36.9 million as of March 31, 2011, and we believe this amount is sufficient to execute our strategy. That concludes our review of the results for the quarter and fiscal year ended March 31, 2011. I will request Mr. Balakrishnan to sum up the call.

Ajit Balakrishnan

First thing, our balance sheet has remained strong. We have no debt, and our cash balance, as Jayesh just noted, stood at approximately $37 million at the end of the quarter. This allows us to meet all our liquidity, our working capital needs and to continue to execute on our product development and marketing strategies.

The key to our success, apart from our own efforts in developing innovative products and running an efficient marketing operation, is the growth of broadband and 3G in India. Early signals on this front make us optimistic and we firmly believe that Rediff will be a key beneficiary as many of these developments gather steam.

Thank you again for your continued support.